Manufacturing sector experiences increased occupancy, decreased vacancy

by admin

When people manufacture products in the U.S., they manufacture them in the Rust Belt, and Cleveland is in the heart of the Rust Belt. Our manufacturing sector has experienced increased occupancy and decreased vacancy levels quarter over quarter for the past three quarters. Cleveland historically has been a manufacturing market, and when manufacturing is strong the Northeast Ohio market is strong.

In addition to the strength of manufacturing, the development of the Utica and Marcellus Shale is the biggest factor affecting Cleveland right now. The Utica and Marcellus Shales have been big in the Pennsylvania market for the past five years, but development is now moving westward into Ohio.

As drilling increases, so too does the need for services for the drillers. The drillers and their service providers need real estate, and there have been dramatic increases in prices over the past four months in rural markets such as Steubenville, Ohio. That growth is beginning to move toward Youngstown, Warren, and up to the Streetsboro area. Employment is expected to grow dramatically over the next five years.

While the overall manufacturing market is surging, there are still challenges in old properties that were modern in the 1930s and 40s, which have little or no value today. Many of these properties are in the inner-ring suburbs. So while Northeast Ohio is growing, the challenge is spurring growth in the areas that need it most.

What is interesting is that with the increased demand for the ferrous metals required for the Utica and Marcella Shale, scrap metal prices have increased. Many functionally obsolete buildings are being torn down so that their steel can be reclaimed in local furnaces and remade into pipes for the Utica and Marcella Shale. So, there is a cleansing occurring as owners remove these blighted structures and provide good developable land.

The largest industrial project under way currently is the redevelopment of the former Chrysler Stamping Plant in Twinsburg. This 2.2 million square-foot building on 167 acres was the world's most efficient stamping plant.

During the restructuring of Chrysler, the plant was shut down. It was sold to used equipment buyers who auctioned off the equipment and then resold the building to a local development company, Independence Excavating, and Scannell properties, out of Indianapolis.

Of the 2.2 million square feet, up to roughly 700,000 of it is going to remain standing while the balance has already been torn down. The site is going to be redeveloped into Cornerstone Business Park. It will be a modern manufacturing and distribution park with rail to most of the sites, and tremendous power capacity.

The City of Twinsburg is working as a partner with the developers and helped them to land Performance Food Group for a 135,000-square-foot warehouse/distribution center. Performance Food Group was looking to relocate out of the city, but because of the availability of this land they remained in Twinsburg.

Based on current projections, it is likely that this industrial park will employ more people after it is fully built out then Chrysler did only a few years ago.

Sales of industrial property have picked up over the past quarter. Northeast Ohio is typically a market where owners of businesses like to own their properties. The split is probably 60% owner-occupied facilities, 40% tenant. However, with the recent construction and financing, the market has shifted to more of a landlord and lessor market. Recently the market velocity for sales has increased.

The hottest two submarkets are the Southcentral market where I-77 and I-480 come together and the Southeast market along I-480. Both have a large base of industrial properties with good highway access.

The Northeast Ohio market is separated by I-77 splitting the market into east and west. Typically the east side has more transactions because it has more companies, but right now the west side has a low vacancy rate and is getting stronger.

The unknown for the west side is the closure of the Ford Engine Plant No. 2. It is possible that this 2 million-square-foot structure could be torn down, but until there is certainty prices will be dampened.

In the next year or two, the biggest stories will be the rebirth of the build-to-suits and the continued reworking of obsolete manufacturing buildings. As manufacturing stays strong, renovations and new construction will increase, creating a more modern Cleveland Industrial market. The overall health of the market appears to be on the upswing for the first time in years.

— Terry Coyne, CCIM, is an executive vice president in the Cleveland office of Grubb & Elis Co.

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