Cleveland Industrial Market Embraces New Projects
The industrial real estate market in Cleveland has a long and storied history. The region’s market powered much of the overall growth in the early 20th century and, at that time, propelled Cleveland to the nation’s sixth largest city.
The market transitioned to automotive production, which reached its peak in the 1960 and 1970s. Nearly half a million people were employed in the automotive sector during these decades, in plants operated by Ford, Chrysler and Chevrolet, or at the thousands of third-party companies that supplied everything from wire harnesses to pumps and steel.
Over the next half century, the market has again transitioned and while domestic automotive production is still a critical component, advances in technology coupled with a gradual but consistent decrease in the number of vehicles actually being built has resulted in considerably fewer people being employed in the auto industry. Current estimates are around 120,000 jobs.
A terrific example of this transition is the former Chrysler stamping plant in the Cleveland suburb of Twinsburg. It opened in 1956 and quickly became a critical part of the auto giant’s production cycle, processing and stamping over 25,000 tons of steel annually. At its peak, the plant employed over 5,000, but it did not survive Chrysler’s bankruptcy filing in 2009 and was closed in mid-2010. The 2.2 million-square-foot facility was purchased by a developer the following year, but it was the 167 acres located adjacent to a primary interstate that caught the developer’s eye.
The facility was razed, and new buildings have since been constructed for Vistar (137,000 square feet), FedEx (303,000 square feet) and Amazon (248,000 square feet) at what is now dubbed Cornerstone Business Park.
This summer, construction began for O’Reilly’s Auto Parts (400,000 square feet), as well as a speculative building (240,000 square feet), which will join a now-full initial spec building (200,000 square feet) built in 2015. Once these projects are completed, only 23 acres of undeveloped land will remain.
Speaking of Amazon, after making an entrance in the Cleveland market at Cornerstone Business Park in 2016, the company made a huge splash last summer when it announced plans to construct an 855,000-square-foot facility in North Randall, Ohio. In an ironic twist, the site was previously occupied by Randall Park Mall, which was dubbed “America’s largest mall” when it opened in 1976. Encompassing 2.2 million square feet, the mall had early success before suffering a slow but steady decline. It eventually closed its doors in 2009.
But the online retail giant wasn’t done making local headlines. Last fall, Amazon announced plans for a second fulfillment center that was again being built at a location occupied by another dead mall. This second facility was to be built approximately 20 miles north in Euclid on a site formerly home to Euclid Square Mall. Although the building will cover 650,000 square feet, it is designed to be three floors with a total of 1.7 million square feet under roof. The North Randall facility will be completed by the end of this summer while the Euclid facility is scheduled to open in early 2019.
Widening out the picture, Cleveland’s industrial market is enjoying good times not seen in over 20 years. The vacancy rates in most of the industrial submarkets are under 5 percent and, in the mainstream submarkets in the Southeast and Southwest, are less than 4 percent. As a result, rental rates have dramatically increased, with the newest, most efficient warehouse space commanding north of $5 per square foot on a net basis.
After seeing a strong 2.2 million square feet of positive net absorption in 2017, the market is showing little signs of slowing down, as evidenced by the 1.1 million square feet of net absorption through the first half of 2018. Strong numbers such as this will typically usher in new construction and Cleveland’s industrial market is again delivering.
Bolstered by the previously mentioned Amazon and O’Reilly projects currently underway, the market currently has nearly 4 million square feet of industrial construction underway. This includes several speculative developments in locations such as Glenwillow (434,000 square feet), Strongsville (180,000 square feet) and Stow (100,000 square feet).
These follow a steady string of recent deliveries, including projects for Heilind Electronics (188,000 square feet in Mentor), Mikey Thompson Performance Tires (220,000 square feet in Stow) and GED Integrated Solutions (133,000 square feet in Glenwillow).
As the industrial market continues to strengthen, the projects are getting more ambitious. An example is a proposed cold storage project targeted for a 40-acre, brownfield redevelopment site located just south of downtown Cleveland. The project could house up to 500,000 square feet of space that would be cooled, chilled and/or super-chilled, as low as 20 degrees below zero. A growing demand coupled with a decided scarcity of this type of product across the region could help this $100 million project become a reality.
— By Alec Pacella, Managing Partner, Senior Vice President, NAI Daus. This article originally appeared in the August 2018 issue of Heartland Real Estate Business magazine.