The Cleveland Office Refinancing Cliff: Cap Rate Selection in a Bifurcated 2026 Market

Category: Office Market & Income Approach  |  Estimated Read: 7 minutes  |  Prepared: April 27, 2026

For Cleveland-area commercial appraisers, the office sector in 2026 is presenting the most analytically demanding assignment environment in more than a decade. The market is not “bad” in any single metric — it is bifurcated, and the spread between trophy assets and aging Class B/C inventory has widened to the point that a single market-wide cap rate selection is increasingly indefensible.

The Q4 2025 / Q1 2026 Cleveland Office Numbers

The most recent quarterly reports paint a market in transition rather than collapse:

• Newmark reported that Cleveland’s CBD office vacancy moved to 22.7% in Q4 2025, down 60 basis points quarter-over-quarter — almost entirely on the strength of the 1.0 million SF Sherwin-Williams HQ delivering and being occupied. Excluding that single event, the broader market was essentially flat.
• Cushman & Wakefield put overall Cleveland office vacancy at 10.9% at year-end 2025 (down from 11.1%), a methodology that excludes much of the obsolete inventory other firms count.
• Colliers showed Northeast Ohio overall vacancy at 17.9% at year-end 2025, up 10 basis points from September.
• Newmark also reported Cleveland’s overall asking rent at $21.31/SF in 2025, with 3.8% year-over-year asking-rent growth — counterintuitive in a market with this much vacancy, and worth investigating in any 2026 income-approach analysis.
• Marcus & Millichap’s 2026 forecast noted that Class A buildings built after 2010 posted sub-5% vacancy, while over half of metro inventory remains in Class B/C — where vacancy continues to weaken. Less than 400,000 SF of new office space is scheduled for 2026 delivery, and it is reportedly entirely pre-leased.

The Issue Driving 2026: Loan Maturities, Not Occupancy

JLL’s Cleveland team has been direct about the dominant 2026 dynamic: many downtown buildings are entering receivership not because of operational failure but because the property is worth less than the original purchase price at the time of refinancing. The valuation question on a refinance assignment is no longer “what is this building worth at stabilized occupancy” — it is increasingly “what does the income stream support given the available debt and equity capital, and what discount does the market require for the obsolescence risk.”

For perspective, national office Class A cap rates reached approximately 8.4% by Q1 2025, with Class B at 8.68% and Class C at 9.02%, according to CBRE data — a meaningful expansion from the 6.5%–7.0% range typical pre-2022. National appraisal firm Integra Realty Resources reported overall office vacancy approaching 32% nationally; properties above 15% vacancy are widely considered distressed for financing purposes.

Three Practice Implications for the NE Ohio Office Appraiser

1. Cap rate stratification by class is mandatory, not optional.

A single market cap rate range applied across an East Ninth Street Class B tower and a post-2010 Class A property in Beachwood will materially misvalue at least one — and possibly both — properties. The data supports separate analyses by submarket and vintage.

2. Sherwin-Williams HQ is a one-time event in your time-adjustment analysis.

A naive application of a Q4 2025 absorption number that includes the 1.0 million SF HQ delivery overstates organic CBD demand. Strip the build-to-suit, and the market was flat. Document this clearly in the addenda.

3. Watch for medical-office and biotech outperformance.

While conventional office cap rates expanded, medical office vacancy nationally remained below 7% in 2025, and University Hospitals’ partnership activity in Cleveland Heights has produced relatively durable income streams. Treat MOB assignments as a distinct market segment.

The takeaway for 2026: appraisers who can clearly articulate where a specific subject sits within Cleveland’s bifurcated office market — and who can support a defensible cap rate that reflects both class and submarket risk — will be the ones lenders and special servicers continue to engage as the refinancing wave plays out through 2027.

Sources & Citations 1. Cleveland Real Estate Market Reports — Q4 2025 Office Report. Newmark. January 2026. 2. Cleveland MarketBeats — Office Q4 2025. Cushman & Wakefield. January 14, 2026. 3. Cleveland’s office market shows signs of life despite ongoing headwinds. Crain’s Cleveland Business. January 26, 2026. 4. Cleveland 2026 Investment Forecast — Office Market Report. Marcus & Millichap. 2026. 5. Cleveland Office Price per Sqft and Office Market Trends. CommercialCafe (Yardi).6. U.S. Cap Rate Survey H2 2025. CBRE. February 10, 2026. 7. Cap Rates for Apartment/Multifamily Properties 2026 (commercial benchmarks). 8. U.S. Office MarketBeat Reports Q1 2026. Cushman & Wakefield. April 2026.