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Building on the trends that began to emerge in the second half of 2010, the Toledo region’s industrial real estate market continues to improve. Demand for space in northwest Ohio and southeast Michigan is occurring at its typical slow, steady pace. The result has been positive net absorption of more than 400,000 square feet during the past year. The vacancy rate fell from 8.65 percent at the end of 2011 to 8.52 percent at the close of 2012.
If the improvement in the vacancy rate slows during the next 12 months, it will more likely be due to the poorer quality and functionality of much of the residual stock of empty buildings than weakening demand. One can see this evidence with the spike in new construction driven by build-to-suit projects for several noteworthy users who could not find suitable space within the existing supply.
Auto sector is big driver
It would come as no surprise to anyone remotely familiar with Toledo’s history and economy that a considerable portion of the user activity has come from the automotive sector. Suppliers to primarily Chrysler Group and General Motors (GM) have been quite active and have accounted for several of the larger lease transactions this past year. More industrial real estate activity is expected in the next several years as Chrysler expands production at the Toledo North Assembly plants.
Non-automotive manufacturing companies also have been active fulfilling their real estate needs. One of the more interesting trends is the significant number of transactions completed or in process with all nature of recyclers, including those handling consumer goods, electronics and industrial wastes such as plastics and glass. These users have been both bought and leased facilities. We cannot say, from our perspective, if this trend is unique to the Toledo area.
Build-to-suit trends
Wider recognition of Toledo’s transportation and logistics assets and its growing role in the warehouse/distribution sector is evident among the build-to-suit projects currently under construction. A 160,000-square-foot building is nearing completion for FedEx Freight. This construction is the second build-to-suit in the area for a division of FedEx in the past five years.
Newell Rubbermaid’s Toledo-based Calphalon unit also chose to consolidate multiple local warehouses into a 400,000-square-foot distribution facility being built for it along I-75 at the SR-582 interchange in northern Wood County.
InSite Real Estate, which is based in Oak Brook, Ill., will own the facility and lease it to Calphalon Corp. a manufacturer of professional-quality cookware, cutlery, bakeware, kitchen electronics and accessories for the home cook.
InSite also has plans for a second 600,000-square-foot building at the same site, which would be constructed once sufficient tenant commitments are received. The level of tenant inquiries into the proposed second facility has been encouraging.
Another related story, which has been a real positive for the region is BX Solutions, a local logistics company formed during the past 18 months by former executives of BAX Global, an international shipping company, and local investors.
The company has taken over the 278,000-square-foot freight-handling facility on the apron of the Toledo Express Airport abandoned by BAX when it ceased operations in the U.S.
BX Solutions has grown quickly and has established impressive business relationships with some of the largest logistics players in the country. Looking forward, BX sees great opportunity for growth for themselves and the region through leverage of the region’s logistics assets, which include CSX’s recently completed intermodal facility at North Baltimore, Ohio, just south of Toledo.
High-profile spec project
One speculative development is moving forward with the objective of capturing some of the unmet demand for more contemporary manufacturing and warehouse/distribution facilities. In September 2012, the Toledo-Lucas County Port Authority announced the formation of a partnership with the Harmon Family Development Corp. of Columbus, Ohio, to develop the former Jeep plant site on Jeep Parkway and I-75 on the north side of Toledo.
Known as the Overland Industrial Park, development plans for the brownfield site are being finalized. The site’s 80 acres could ultimately accommodate up to 1 million square feet of space in multiple buildings.
The partnership is proposing to build an initial structure of 100,000 square feet on a speculative basis, which would be delivered this fall. The site offers easy access to I-75 and is located within a mile or two of both the Chrysler North Assembly plant and GM’s expanding Powertrain plant, which builds transmissions.
Meanwhile, rental rates are rebounding, albeit at a slow pace. Rates remain well below the peak achieved at the end of 2008, although that’s partly because the better, higher-rate buildings have been absorbed.
In any event, a clearer separation in asking rates between those submarkets with the oldest building stock and those with the newest is emerging. When taken into consideration with other local market dynamics, this trend affirms our expectation that Toledo’s industrial sector is poised for more development and new construction in the coming year or two.
– Harlan Reichle, CCIM, SIOR, is president and CEO of The Reichle Klein Group. The Toledo-based company provides commercial and industrial property brokerage, property management and facility maintenance services throughout northwest Ohio and southeast Michigan.