Banking & Finance and Real Estate & Retail

Huntington consolidates downtown office space: Bank leaving Capital Center after merger with Sky

July 16, 2007

Huntington Bancshares is giving up its local headquarters in Capital Center downtown now that it has completed its $3.6 billion purchase of Sky Financial Group.

The 100 employees based at Capital Center, 201 N. Illinois St., will move to a Sky-owned office building at 45 N. Pennsylvania St. Sky bought the building last year as part of its $321 million purchase of locally based Union Federal Savings Bank.

Bowling Green, Ohio-based Sky announced it was being purchased by Columbus, Ohio-based Huntington in December, just two months after completing the Union Federal purchase. The Huntington-Sky deal closed early this month.

The merged bank is opting for the Sky building because it owns the 75,000-square-foot property, and it has space available, said Mike Newbold, Huntington's regional president.

"We're renovating a number of floors in the building, working three shifts to get it done," Newbold said.

Huntington signed a 10-year lease extension for its space on the 17th and 18th floors of Capital Center last fall, but bank officials are confident they can find another user to sublease the space. The bank plans to keep branch locations open in both buildings.

The move is just another in a long line of hits on the office market caused by bank mergers, which typically send backoffice functions out of state. By the early 1990s, three of the city's large national banks, Merchants National, Indiana National and American Fletcher National had been acquired by out-of-state financial institutions, leaving gaping holes in the city's office market.

"It's additional space added to the marketplace due to banking consolidation," Thomas Hadley, a principal with locally based Summit Realty Group, said of the Huntington deal. "We are used to seeing that in Indianapolis."

Perhaps the biggest blow to the downtown market came in 1998 when Banc One Corp. bought First Chicago NBD Corp.

Bank One ultimately vacated 270,000 square feet in NBD's local headquarters, One Indiana Square, and consolidated operations into what was then called Bank One Center, the state's tallest building. Chase Bank bought Bank One in late 2005 and renamed the 48-story building Chase Tower.

Real estate brokers were anticipating a hit from the Sky-Huntington merger, but it was unclear until now whether Huntington would vacate its 35,000 square feet of space in Capital Center or Sky's space.

The bank's departure from Capital Center could depress rental rates in that building since sublease space typically is offered at a lower rate than the direct market, Hadley said. The sublease space would compete with vacant, full-price space in the same building.

Already, Capital Center's vacancy rate had been slightly higher than the market average. The north tower of the 646,000-square-foot building has an occupancy rate of about 70 percent, while the south tower stands at about 78 percent, statistics from Bethesda, Md.-based CoStar Group Inc. show.

Overall downtown vacancy fell slightly in the second quarter of 2007, to 15.9 percent from 16.7 percent, according to data from the local office of St. Louis-based Colliers Turley Martin Tucker.

Capital Center is owned by Invesco, a New York-based investment management firm, and is managed by the local office of Los Angeles-based CB Richard Ellis. The bank has not yet given formal notice that it plans to leave, said Dan Richardson, CB's first vice president. He expects the bank will have no trouble subleasing the space.

"It's a good location in the building, and has a new buildout they've just completed," Richardson said. Huntington hopes to complete the move by Labor Day weekend, Newbold said.



IBJ reporter Scott Olson contributed to this story.
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