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 …
Ohio
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 …
A relatively strong 2012 Columbus office market left us with a few questions that will be answered as we move through 2013 and into 2014. Will rental rates continue to increase incrementally while vacancy and tenant improvement allowances continue to fall? Will we see speculative office development for the first time in five years? There are other compelling questions, which should keep things interesting for the next 12 to 18 months. Will the handful of prospects for large blocks of office space opt for longer lease terms versus recent trends favoring short-term deals? Will Canadian investors continue to perceive Central Ohio as a great place to shop for bargains as the Canadian dollar maintains its strength against the U.S. dollar? Development Picks Up Of course, new construction is currently the big story. Last year, the development community broke ground on more than 1 million square feet of new office space, including two downtown projects near Nationwide Arena. The projects include a 286,000-square-foot building, of which Columbia Gas has pre-leased 208,000 square feet, and a 214,000-square-foot Nationwide Insurance build-to-suit. In the Northeast office submarket, nearly 200,000 square feet of new development is under construction, including a headquarters facility for Bob Evans …
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 …
Downtown Cleveland is in the midst of a redevelopment boom. During the last 12 months, the city has seen a new $350 million casino and a new $33 million aquarium open. And over the next 24 months, it will see a new $465 million convention center complex, a new $275 million multi-tenant office building and hotel and a $180 million redevelopment that will include a new 220,000-square-foot office tower as a part of consolidation efforts for the Cuyahoga County government. However, one of the most impactful and long-lasting components is the development of more than 1,100 new residential housing units that have either been announced or are under construction. If all come to fruition, it will increase downtown’s residential inventory by over 20 percent. Market Drivers Although there are numerous factors contributing to this residential building boom, the following stand out as key components. • Build it and they will come? They are already here. As of January 2012, the downtown area had just under 4,200 residential units. Of this, approximately 25 percent were developed in the past five years. However, this delivery schedule was much lower as compared to the blossoming demand. The source of this demand has come …
With tenant demand increasing and retailers looking to expand in Cleveland, positive net absorption and limited development have created a balanced retail market that will lead to improvement and growth in 2012, according to Marcus & Millichap. The construction levels are relatively low with only 260,000 square feet of shopping center space scheduled to be completed this year, more than doubling last year’s 121,000 square feet. By comparison, 2008 saw 1 million square feet in retail completions. “When you look at it and put it in perspective versus construction levels seen during the last 10 years, it’s significantly below the levels we saw at the height of the market,” says Scott Wiles, a director and vice president within Marcus and Millichap’s National Retail Group. “It was an expected trend that last year was the low point for construction levels in the submarket, and that stems from 2009 and 2010 being very inactive leasing markets,” Wiles says. This year’s limited construction will aid Cleveland’s retail growth, however, in light of an uptick in leasing. “The positive thing about Cleveland is that we never see the construction levels that some of the sexier markets see, so it doesn’t throw our supply and …
Retail operations have likely bottomed in Cincinnati and will show signs of modest improvement through the remainder of 2012. Encouraged by a more stable job market and restored savings accounts, consumers are beginning to spend more freely. National retailers, which stalled expansion plans during the recession, will capitalize on discounted rents to move into prime retail corridors in Hamilton County and Northern Kentucky. Anchored shopping centers will outperform due to their ability to draw steady shopper traffic, keeping vacancy at Class A properties tight. The revitalization of the CBD will attract young professionals, while the recent opening of The Banks project will boost visitor volume. Demand will pick up for inline space within the area as restaurants and boutiques look to capture the increase in foot traffic. Developers who built in outlying areas will struggle to backfill unanchored strip centers. Until single- family home sales pick up, lenders will be unwilling to provide start-up financing for local retailers, leading to a weak recovery in tertiary markets. By the Numbers Employment gains are driving modest improvement in the retail sector. Cincinnati employers created 10,400 jobs during the first quarter. On a year-over-year basis, 20,300 jobs were generated, an increase of 2.1 …
With the local economy recovering from the Great Recession, the commercial real estate industry in Cincinnati is heating up. Strong office leasing activity in recent quarters has driven down the vacancy rate. From a high of 21 percent in the first quarter of 2011, total vacancy has steadily dropped to its current rate of 19 percent, the result of approximately 700,000 square feet of positive absorption, according to Jones Lang LaSalle. The real estate services firm tracks Class A and B office properties greater than 20,000 square feet, excluding owner-occupied medical and government buildings. The growth of Cincinnati businesses has sparked increased demand for office space, leading to approximately 1 million square feet of product currently under construction or planned for the next year. Meanwhile, the lending climate has improved greatly since the depths of the recession. Cincinnati has welcomed corporate relocations and expansions during the past year. Following several years of short-term lease renewals and tenants giving space back, this is welcome news that is already improving market fundamentals. Driving the increase in office demand is job growth in the healthcare industry as well as the professional and business services sector. The three largest leases within the last year …
After posting slightly positive net absorption for three consecutive quarters, the industrial market in Cincinnati bucked that trend in the second quarter by recording negative absorption of 836,000 square feet, according to Xceligent. This setback can partially be attributed to a falloff in demand, but was largely the result of several large owner-occupants moving out of their buildings. As a result, the overall vacancy rate climbed 20 basis points in the second quarter to 10.2 percent. Still, that’s below the peak vacancy rate of 10.7 percent reached in the second quarter of 2011. Significant new vacancies in the second quarter included Avon (750,000 square feet), Hamilton Fixture (330,000 square feet), and Sonoco Corrflex (319,000 square feet). This wiped out the positive absorption recorded in the first quarter. Through the first half of 2012, the market has posted 395,000 square feet of negative net absorption. Underlying Trends Similar to what we experienced in 2011, tenants are taking advantage of discounted rental rates in Class A product. There has been marginal activity involving Class B or C product. The good news is that there are growth opportunities with some space requirements of more than 100,000 square feet. That demand is driven by …
There is substantial industrial development occurring in the Cincinnati market on a non-speculative basis, with three projects in various stages of completion. Foreign capital and the need for a French firm and a Japanese company to have a significant American manufacturing and distribution presence have spurred two of the developments. Usui International Corp., a Japanese automotive/engine components maker of fuel injection systems for Ford, Honda and Toyota, has nearly completed a 90,000-square-foot, heavy industrial facility in the Cincinnati suburb of Sharonville, just north of downtown. Usui toured the region for nearly a year before selecting the Sharonville site and purchased approximately 12 acres. Cincinnati Commercial Contracting is the developer of the build-to-suit project, which Usui will own. The project is scheduled for completion in the second quarter of this year. The Usui deal reflects a trend among Japanese auto companies of building facilities in North America for several reasons: Japan’s energy infrastructure is aging and its production capacity is limited, particularly with the closure of its nuclear generators; the high value of the yen versus the U.S. dollar has increased the price of Japanese-made products; a need to minimize logistics and shipping time and costs by switching much of Japan’s …