In 2018, the Greater Cincinnati industrial market experienced record-breaking positive net absorption of 7 million square feet, the highest level of absorption in more than a decade.
This was followed by only 201,000 square feet of direct net absorption in the first quarter of this year, which at first glance could be concerning. But the good news is that 8 million square feet is currently under construction across our market.
Over the past five years, new construction deliveries have been a consistent source of growth and positive absorption in Greater Cincinnati. The industrial market typically does not experience a high absorption rate in the first quarter when compared with the rest of the year. The low absorption figure in the first quarter of 2019 is actually due to lack of available supply rather than a major market change.
Jeffrey R. Bender, Cushman & Wakefield
Leasing impact
New-construction, pre-leased buildings were a major source of positive net absorption in 2018. Winter weather and construction schedules limited first-quarter completions to just 520,000 square feet. The largest delivered facility was the 308,000-square-foot West Chester Trade Center #1, a bulk distribution building in the Northwest submarket. TSC Apparel moved into 196,000 square feet at the facility, absorbing more than 60 percent of the building.
Leasing in buildings completed between 2016 and 2018 dictated positive absorption in the first quarter. Shaw Industries and Hollar Inc. both moved into the Union Centre Logistics Park 1 on Seward Road in Fairfield, Ohio, leasing 129,000 square feet and 126,000 square feet, respectively. Built in 2017, the 476,000-square-foot Union Centre Logistics Park 1 was 86 percent occupied by the first quarter of this year. Flint Ink and Wayfair moved into 42,000-square-foot spaces at Jacquemin Logistics Center I in West Chester, Ohio. This pushed building occupancy to more than 75 percent.
In Florence, Kentucky, the 218,000-square-foot Florence Logistics Center was fully occupied after Trac Intermodal moved into 102,000 square feet. Nearby in Hebron, Kentucky, e-commerce firm iHerb expanded by 176,000 square feet to occupy the entire 387,000-square-foot Park West International N2 building on Worldwide Boulevard. At the recently completed Airpark International #26 bulk distribution building in Hebron, Atlas Air moved into 58,000 square feet. Home building products manufacturer Pivotek leased the entire 123,000-square-foot building at 910 Lila Ave. in Milford, Ohio, after the facility had been vacant for 18 months.
Looking ahead
Greater Cincinnati continues to grow as a center for distribution and logistics. It is among cities in the lower central Midwest that have all experienced strong absorption rates in recent years as they service the same regional populations, albeit with some small differences. Unlike nearby Columbus or Indianapolis, Greater Cincinnati is a land-supply constrained market, where good land sites are rare and topography limits development opportunities. This has led to record-low vacancy rates since 2017 and buildings with long-term leases by national tenants that appeal to national institutional investors.
Greater Cincinnati is largely on the radar of these investors, as their interest expands from coastal areas to secondary and tertiary markets. As the 14th-largest industrial market in the United States, investors are attracted to Cincinnati’s market fundamentals and geographic location.
Sixty percent of the U.S. population is accessible in a one-day drive. The city has access to I-75, one of the busiest ground-transportation routes in the country, as well as I-70 to the north and I-64 to the south — all connecting to other major ground-transportation routes. This ground-transportation access, combined with the new $1.5 billion e-commerce air hub project at Cincinnati/Northern Kentucky International Airport, makes Greater Cincinnati a relevant distribution location.
Much like last year, the pipeline of buildings under construction is robust. In addition to build-to-suit projects, more than 5 million square feet of speculative bulk distribution buildings are under construction. Most of these speculative buildings will be completed by mid-2019, and as of the first quarter, the majority has not been pre-leased.
With the anticipated delivery of new speculative product, the direct vacancy rate is expected to tick up this year from its current rate of 3 percent. As the newly constructed space is absorbed, that rate will fluctuate.
With all of the new space on the market, Greater Cincinnati has experienced 15 percent rent growth in three-year average net asking rates — a first-ever such run. It’s expected that asking rents will continue to grow this year. Class A bulk is up 15 percent, and the overall market is up 10 percent. Despite lukewarm first-quarter results, all of these signs point to another strong year for the Greater Cincinnati industrial market.
— By Jeffrey R. Bender, Executive Managing Director, Cushman & Wakefield. This article originally appeared in the July 2019 issue of Heartland Real Estate Business magazine.