Commercial real estate values are on the rise in Cleveland

Downtown Cleveland’s commercial real estate market has come alive in the last five years with renovation and new construction projects taking place across the city, says Joseph V. Barna, SIOR, Principal at Cushman & Wakefield/CRESCO Real Estate.

“The economy has turned,” Barna says. “The buzz of what’s going on in Northeast Ohio, specifically in Cleveland, has caught the attention of real estate investors from all over the country. People want to be here.”

Commercial real estate value is up across the board, both on the sales and leasing side, and in both the office and industrial sectors. In addition, land values have begun to rise as investors as well as users are more willing to put shovels in the ground and begin new rather than take on a property that has significant flaws. As the vacancy rate for the industrial market has dropped from more than 10 percent in 2008 and 2009 to 4.6 percent today, many of the more desirable buildings have come off the market.

“What you have are older multi-story structures and buildings that have been expanded several times and lack open contiguous space,” Barna says. “They simply are not functional.”

Smart Business spoke with Barna about the best strategy to follow in a growing real estate market.

What are some important tips for entering the real estate market?

It’s important to understand that you make money in real estate when you buy, not when you sell. Make an informed decision and don’t overpay. If you’re buying an older piece of real estate, understand the structure of the building and the mechanical components. How long will it be before the property becomes obsolete? What limitations does the space have that could hamper your growth plans as well as exit strategy? If you’re not experienced in real estate, these are things you may not think to consider. It’s critical to have a knowledgeable team that can walk you through the steps. Have a good real estate consultant, financial adviser, attorney, environmental specialist and a contractor all of whom understand commercial real estate. Surround yourself with a team of consultants that can lead you to a smart decision. So many people who have found success in business think they can easily transition into real estate. You need to look beyond the sales price, however, and think about total operating expenses. Additionally, if your plan is to have tenants, consider the cost of adapting the space to a tenant’s unique requirements.

How important is planning when entering a new market?

The planning process is critical both from the developer and user side. When you come into a market, you need to understand the trends and the characteristics of that specific location. There are certain sectors of Greater Cleveland and Northeast Ohio that are much more desirable for redevelopment or new development. When it comes to speculative construction, you need to be in the right place. Development firms utilize “feet on the ground” local experts to ensure their decisions are based on real-time market knowledge and guidance.

If you’re a user, there are limited choices in the market and your planning needs to be ahead of the curve. Assemble that team and make sure you are truly exposed to all the alternatives. On the leasing side, lease terms are longer today. People know that inventory is tight and they want to lock up functional space long-term, especially if it includes expansion and contraction rights.

Conversely, if you own a building, it may be a good time to sell because values are higher than they have ever been, demand is high and the supply is low. It’s also a good time to liquidate because there are a lot of buyers with cash looking to come into this market. The more qualified buyers you have interested in acquiring your property, the greater the likelihood of bidding up the price.

How do you deal with economic uncertainty?

The world of real estate, like most things, is always in a state of constant change. Change also brings opportunity and you just need to stay ahead of the trends and understand where is the opportunity. Technology has provided potential investors and users with so many sources of information, it can be overwhelming. Don’t make a rash decision. Rather, be willing to take a step back and think before you act.

Insights Real Estate is brought to you by Cushman & Wakefield/CRESCO Real Estate