For the first half of 2013, the Cincinnati industrial market has reflected the growing strength of the broader economy, while gaining momentum alongside the manufacturing sector. The increased activity seen thus far has left fewer options for tenants in the market and increased leverage for landlords in negotiations for relocations, expansions and renewals. As supply tightens, new speculative construction will likely fall short of the demands of the marketplace. This trend will likely continue into 2014. Tenant Activity Accelerates While there has certainly been an uptick in the volume of prospects touring properties, these businesses are more committed to a course of action than we have seen in the last few years. Further, these companies are increasingly optimistic and giving consideration to larger spaces to accommodate future growth and longer lease terms in order to lock in today’s aggressive lease rates. Similarly, tenants in older properties are seizing this opportunity to move into more modern spaces, causing a shift in the quality of vacant inventory. A cautious mood remains, as lease negotiations continue to involve discussions of termination options and other risk-mitigation language. The northern Cincinnati suburbs have been active in the first half of the year, with more than …
Midwest Market Reports
The figures for past and projected new industrial building completions are anemic in Northeast Ohio, leaving a lot of commercial real estate brokers concerned that there will not be enough buildings to meet a steady increase in buyer and tenant demand. From 2008 to 2012, a paltry 1.4 million square feet of new industrial buildings were added to the Cleveland landscape, the majority of which were designed specifically for owner occupants or were fully pre-leased. Projected new construction, as reported by real estate research firm Reis, does suggest an increase in future building velocity. However, absorption is forecast to outpace new buildings through 2017 by a factor of 4 to 1. If this were to occur, Cleveland would see a drop in vacancy rates to historically low levels, approaching five to six percent. That may not seem alarming to some observers, but when you back out functionally obsolete inventory in some of the older pockets of industry, the true vacancy rate will hover at or below four percent. “There is simply not enough product to show prospective buyers and tenants,” says Robert Wetzel of CRESCO Real Estate. “We hope this spurs some speculative construction. Depending on a prospect’s needs, we …
The weather in Cleveland in the springtime is notoriously changeable — sunny and warm one minute and then cloudy and chilly the next. The current state of Cleveland’s office market is similarly uneven. The sunniest segment is clearly the Class A market in the Central Business District (CBD). Ernst & Young Tower, Cleveland’s first multi-tenant downtown office building in more than two decades, recently opened at close to a 90 percent occupancy rate. Despite an asking rental rate in the low $30 per square foot range, which represents the top of the market, this 487,000-square-foot tower illustrates a substantial pent-up demand for new, efficient office space. The balance of existing Class A properties in the CBD are also performing well, with an average vacancy rate of 15.7 percent at the end of the first quarter. And the overall momentum downtown is strong. Nearly $1 billion of development has occurred during the past 24 months, including a new casino, convention center and medical mart completed this year. Additionally, a new headquarters for the Cuyahoga County government will be completed next year. All of these factors increase the likelihood that another office project in the CBD will start soon. Downtown’s Class B …
Cleveland's retail market is continuing to slowly recover from the effects of the recent recession. This recovery is sparked by a number of factors. One of the brightest spots in the Cleveland retail market is the revival of downtown, which is bringing businesses, residents and retailers to the area, stabilizing the metro’s core. The number of visitors to downtown Cleveland is expected to double from 3 million in 2012 to 6 million in 2013, largely drawn by the opening of the Horseshoe Casino Cleveland last year. The completion of the highly anticipated Cleveland Medical Mart & Convention Center is also contributing to increased traffic. Several large conferences have already been booked and area retailers will benefit greatly from convention center traffic as visitors eat at local restaurants and shop at nearby stores. In addition to tourism, the daytime population of downtown is increasing as several employers move or expand offices. This growth is encouraging many residents to locate in proximity to these jobs, and the rising housing demand has spurred apartment development throughout downtown neighborhoods. As retailers expand in the area to serve this residential population, retail operators will benefit from rising occupancies and rents. Improving Vital Signs Cleveland’s economy …
Like many markets in the Midwest and across the U.S., the Columbus industrial sector started the year sluggishly. First-quarter net absorption fell into the red with few notable leases to report, although a couple of significant investment sales closed. Generally, industrial activity is back-loaded into the second half of most years, and that should be the case for Columbus in 2013. Also, few markets have brighter long-term prospects than Central Ohio. After closing the fourth quarter of 2012 with 500,000 square feet of net absorption, Central Ohio’s 260-million-square-foot industrial market gave back 239,439 square feet in the first quarter of 2013, resulting in an 8.9 percent vacancy rate. The bulk warehouse sector suffered through 833,816 square feet of negative net absorption in the first quarter, resulting in a jump in the vacancy rate of 233 basis points to 10.6 percent. Bare Escentuals, a cosmetics retailer, registered the first quarter’s biggest industrial lease, expanding by 102,155 square feet to claim the entire 512,113-square-foot building at 5255 Centerpoint Drive. While leasing trudged along, a few investment sales took place in the first quarter of 2013, with notable deals including the sale of two buildings by KTR Capital Partners to affiliates of Welsh …
The recession negatively affected local, regional and national banks in Minneapolis/St. Paul and all commercial real estate product types. A wide range of real estate owned (REO) assets have sold in recent years, including single- and multi-tenant office buildings, industrial buildings, convenience stores, office condos, residential condos in bulk blocks, raw land, a campground, a historic warehouse, hotels — just about everything. The biggest sector of bank REO property has been land, particularly residential development land. Nevertheless, the start of the housing recovery has seen a reduction in the inventory of individual residential lots coupled with increased interest in some of our larger residential development sites from national homebuilders. While most of the insurance companies exited the Minneapolis commercial real estate market years ago, one of the national insurance companies did repossess a large Class A office property last year and sold it to a local investment group for a dollar more than the loan, which was $110 million. Zeller Realty Corp. of Chicago and Atlanta-based Invesco acquired the Fifth Street Towers from MetLife in April 2012. The buildings (two towers) were built in 1987 and 1988, and consist of roughly 1 million square feet. The group that lost the …
In the immediate wake of the Great Recession (version 2.0), it was not uncommon to see halted development projects in greater Cincinnati. Now that the economy has rebounded, retail development has started to follow suit. However, the original developers that began many of the region’s key projects aren’t necessarily the ones finishing them. What follows is a summary of some key projects in various stages of completion that have had to adapt to changing market conditions and consumer preferences. Oakley Station Among the high-profile projects in the greater Cincinnati market that have undergone changes in development direction is Oakley Station. This former 74-acre Cincinnati Milacron complex, originally known as the Millworks project, was conceived as a Main Street-focused lifestyle center supplemented by structured parking that would incorporate some of the existing industrial structures. Once the recession hit, the project fell victim to the nationwide lending freeze and tenants’ slowing growth plans, making it difficult to move beyond the project’s design stage. However, given the location in the geographic center of Cincinnati and the easy access to interstates, Oakley Station was always prime real estate and stayed on developers’ radar screens. Now being developed by Vandercar Holdings, the developer responsible for …
The industrial real estate market in Southeast Wisconsin continued its climb upward during 2012 as the overall vacancy rate fell from 7.1 percent to 6.5 percent. The result was positive net absorption of 3.6 million square feet for the year. This trend marks two-and-a-half straight years without a quarter of negative absorption. Seven of the eight counties in the Milwaukee industrial market area posted a reduction in vacancies during 2012. In Kenosha County, for example, the vacancy rate dropped from 11.1 percent in the fourth quarter of 2011 to 9.4 percent in the fourth quarter of 2012. Two transactions by Venture One Real Estate LLC accounted for most of the positive net absorption. The first transaction, which occurred in December 2012, was the sale of a 62,000-square-foot facility to EMCO Chemical Distributors Inc. This deal was followed shortly by Venture One’s acquisition of the 160,300-square-foot former Cenveo Inc. facility in Kenosha. Kenosha’s industrial market should perform well this year because of overflow demand from the Racine County market, which will necessitate deals in Kenosha. The shortage of space in Racine County will make it a better candidate for build-to-suit and speculative developments in 2013. Transaction Highlights Strong demand in Waukesha …
The industrial real estate market in West Michigan, and particularly in Kent County, continues to trend positive. CBRE’s most recent survey of this real estate class recorded the fifth consecutive period of positive absorption, resulting in a vacancy rate of 7.8 percent for gross industrial space. The industrial base in West Michigan includes nearly 95 million square feet of gross space, of which nearly 50 million square feet is categorized as “leased” space, with the balance “owner occupied.” The absorption of space is being led by the slow and steady improvement of economic conditions in our region. As of the December 2012, the Grand Rapids unemployment rate stood at 6.5 percent, much better than Michigan and the nation, with unemployment rates of 8.9 percent and 7.8 percent, respectively, for the same period. Economic Catalysts Much like the rest of the state, West Michigan has benefited from the steady improvement of the auto industry. The increase in vehicle sales — brought about by both pent-up demand following the recent recession and by need resulting from natural disasters such as Hurricane Sandy — has boosted manufacturing orders to local companies that supply parts and capital equipment to the auto industry. Additionally, our …
The Omaha apartment market remains a strong performer. According to MPF Research, Omaha’s apartment occupancy stood at 95.5 percent at the end of 2012, up a modest 80 basis points from the end of 2011 and in line with Omaha’s average occupancy rate of 95.9 percent since 2000. Coupling the strong occupancy rate with a continued favorable financing environment, it is no surprise that developers are eager to bring new units on line and move quickly to lock in permanent financing. As a result, 2012 saw 1,225 multifamily housing building permits issued, which was very much in line with my predicted total of 1,300 permits for the year, and up 25 percent when compared to 2011. The addition of 1,225 units will increase the apartment housing stock in Omaha by 1.4 percent on an overall inventory of approximately 88,000 units. My expectation is that permit activity will again be around 1,200 units for all of 2013, with a small chance that it could possibly increase to as many as 1,400 units. There are a number of local and regional developers who are actively seeking multifamily land, and the lack of top sites is likely to be the biggest development constraint …