The Toledo industrial market remained stuck in a bit of a soft patch through most of the second half of 2013. Transaction activity was tepid until mid to late fourth quarter when deal flow began to increase.
Consequently, the overall market vacancy rate and average asking rental rate have been essentially flat since mid-2013. With the delivery of the newly built and fully occupied FedEx building in Perrysburg Township contributing materially, the market did absorb more than 316,000 square feet during the last six months of 2013.
Encouraging Signs
There are a number of factors suggesting that real estate fundamentals in Toledo’s industrial market will start moving in a positive direction this year, in some cases quite dramatically. The first is a new construction boom, which we have been anticipating for some time.
With the groundbreaking for the new 1.6 million-square-foot Home Depot warehouse in Troy Township, there is now more space under construction than at any time since before the recession. Several other build-to-suit projects are already in the works and poised to launch in 2014.
Secondly, a rebound in demand from users at the end of 2013 year suggests there will be more transaction activity in the coming months.
There is a high probability these transactions will produce yet more new construction as some of these users are not finding acceptable space from within the existing inventory of available space and are beginning to consider build-to-suit developments.
Given what we know already, 2014 will record some of the highest totals for net absorption and new construction by square feet that we have seen in a long time. With this impending construction activity, it is no surprise that industrial land sales have begun to pull out of the deep freeze that they had been stuck in since 2007. The greatest interest is in sites in Maumee and Monclova Township in Lucas County and Perrysburg and the I-75 corridor in northern Wood County.
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One-Horse Town No More
Auto suppliers have been a big part of the Toledo industrial market during the past several years. Both General Motors and Chrysler have expanded production at major local installations. Still, Toledo has felt the need to diversify its economic base for some time. So, it is gratifying to see that today’s active users in the market are, for the most part, non-automotive.
With the recent successful launch of the new Jeep Cherokee at Chrysler’s North Toledo Assembly Plant, the supplier activity that accompanied the ramp-up to the launch has now faded. Active users are coming from a range of industrial- and consumer-based industries such as food, office furniture, metals manufacturing and fabricating and industrial printing. They are absorbing both manufacturing and warehouse/distribution space.
The burgeoning e-commerce phenomenon also has begun to affect the market. For example, the new Home Depot warehouse is being built to support the web side of its business.
It is worth mentioning again that a feature of the Toledo industrial market is the relative shortage of quality newer buildings, which we track as Class A buildings. Indeed, Class A buildings currently make up only 10 percent of the total inventory.
The vacancy rate of 5.34 percent for Class A buildings is nearly 280 basis points lower than the vacancy rate for the remaining inventory. This shortage, in part, explains the difficulty some users are having finding a suitable building and will drive some of the build-to-suit activity.
The new construction we anticipate will address this supply gap in the market to a degree, but it remains an opportunity, or impediment, depending on how one views the situation.
— By Harlan Reichle, SIOR, CCIM, President and CEO of Reichle | Klein Group. This article originally appeared in the February 2014 issue of Heartland Real Estate Business magazine.