In the industrial real estate market, difficulties continue for those looking for property. These challenges are being multiplied by supply chain issues, which are leading to material shortages and price increases, as well as the industry’s struggles with labor. This has made build-outs, renovations and new construction a challenging endeavor.
“We’ve been seeing inventory constraints in the industrial market for a few years now,” says George J. Pofok, CCIM, SIOR, senior vice president, Cushman & Wakefield | CRESCO Real Estate. “And these recent challenges have made things worse.”
Smart Business spoke with Pofok about the state of Greater Cleveland’s industrial real estate market, and how long these woes are expected to continue.
What does the industrial real estate market look like?
Across Greater Cleveland there is a lack of available viable industrial product. There is a struggle to find anything suitable, regardless of size, but for those looking for properties with a larger square footage, say in the 100,000 square feet range, it’s an even greater challenge. This dearth of inventory within Cuyahoga County is driving the search for industrial properties out into the surrounding counties, creating more urban sprawl.
These conditions have led to more redevelopment of older manufacturing plants — for example, the former Ford aluminum casting plant in Brook Park that recently changed hands is bringing approximately 200 acres of available land to the market. Currently there’s a 1.7 million square foot manufacturing plant that is being demolished on the site. Once that’s cleared, it will allow for new construction, surely making it the most in-demand site in all of Northeast Ohio.
Complicating the conditions in the market is the trouble owners and tenants are having scheduling the trades to come in and complete renovations, such as reworking electrical or renovating aspects of older buildings. Trying to find available help to get work done is a struggle because of the high level of demand for that work, as well as the scant availability of labor within the trade. That’s stretching out timelines to get work started, and in some cases adding to a project’s costs.
What position are landlords and owners in?
It’s definitely a market that favors landlords and owners. Prices are escalating to levels that are higher than I’ve seen in my 25-year real estate career. Those who’ve got viable properties are in a good spot.
There are more longer-term deals than there have been in the past because tenants do not want to get shut out. Landlords of industrial properties are seeing a minimum of three years, and most are even pushing them to five, seven, even 10 years.
What are some of the other contributing factors?
Search activity is slightly above average right now — about what would be expected during the summer months. The issue really isn’t an incredible demand for industrial properties, but the lack of available viable properties.
There is about 18.5 million square feet of industrial property that’s on the market right now — about 3.5 percent. (Total inventory in the market is 515 million square feet.) Some of that includes properties that would be considered functionally obsolete. If that was pulled out, the vacancy rate for available properties would be in the 2 percent range. The Greater Cleveland area has been hovering around 3.5 percent for a few years, which is overall considered an unhealthy market. A more ideal position would be 4-5 percent. And new construction is where that ground could be gained. Unfortunately, new construction is difficult to build at the moment because of the supply chain and trade labor constraints.
These conditions are expected to continue for at least another 18 to 24 months, especially because of the constraints in the supply chain that are holding up materials. Given these challenges, if there is an industrial property that’s maybe not ideal but works for a user, they need to act on it. They can’t wait.
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