The Northeast Ohio Industrial market is the tightest it has been in well over a decade and ended 2014 at 6.92 percent vacant. This is a decrease from 7.69 percent at the end of 2013. Over the course of the year, there was 2.7 million square feet of net absorption, as compared to 2.4 million in 2013. However, helping to moderate this increase was the fact that suitable industrial product became more difficult to acquire in 2014 as the market fell below what is considered equilibrium. Modern and efficient manufacturing plants saw an uptick in demand, coupled with a continued expansion in the warehouse/distribution segment. In past periods, a drop in vacancy to similar levels was the trigger for speculative construction, however, the industrial market has not yet seen this occur on a widespread basis. Although the pricing between existing product and new construction on the sales side is closing, a gap still remains between lease rates for existing properties as compared to those needed to support new speculative construction. Several developers are getting ahead of the curve and in discussions to proceed with speculative development – in hopes of leasing rates rising to the point of making new construction a viable alternative. Over the past few years, companies in need of additional space have been able to find existing space to meet this need. However, as the inventory of existing properties has rapidly diminished, leasing rates are expected to hit this tipping point.
A few examples help to illustrate the current environment amongst the industrial sector. The 177,000-square-foot MTD manufacturing building in Streetsboro was under contract within five weeks of being listed and garnered interest from multiple parties. The building was acquired by a company that was expanding into Northeast Ohio and subsequently completed a sale/leaseback. Another modern, 193,000-square-foot distribution building on Emerald Valley Parkway was vacated after DOTS clothing went defunct. The company became insolvent and vacated the property in April 2014 but the building was reoccupied within several months to Core-Mark Holding Co. Two other prospects were pursuing the property. Core-Mark is an out of state convenience store supplier and this is their first distribution center in this region. Another company from South Korea, Cosmax, opened its first U.S. cosmetic manufacturing operations in several buildings vacated by L’Oreal in Solon. Although the local community feared such a large loss, this transition resulted in almost no sustained vacancy as Cosmax reoccupied a two building complex quickly after L’Oreal vacated. Currently, only one L’Oreal building on Arnold Miller Parkway is still available. Link to full report.