To the surprise of many, manufacturing is growing in strength in Northeast Ohio, and manufacturing properties are rapidly being bought up.
Terry Coyne, SOIR, CCIM, an executive vice president with Grubb & Ellis, says interest rates are low and demand is real, but the vacancy rates for manufacturing properties haven’t come down to the point where there have been dramatic price increases.
Bearing in mind that, in real estate, industrial property is a leading indicator of economic trends, says Coyne.
“The big-picture story is that manufacturing is leading industrial out of the recession in a hurry,” says Coyne. “It’s a good time to be a landlord and a bad time to become a tenant, which we haven’t said in three or four years.”
Smart Business spoke with Coyne about the office and industrial real estate markets in Northeast Ohio, and the conditions that have put it where it is today.
What’s happening with real estate in Northeast Ohio?
Industrial’s vacancy rate is almost always historically lower than the office vacancy rate. In Ohio, we’ve got many industrial companies, so prospective buyers have more of a base to choose from. There are fewer office properties because we’re not a headquarters-type location for regional offices. Currently, Akron’s industrial vacancy rate is 10.6 percent and office vacancy is 11.9 percent, while Canton’s industrial vacancy rate is 9.5 percent and office is 11.6 percent.
We went into the recession with high vacancy rates and are coming out with vacancy rates that are decreasing at a speed I’ve never seen. We’re down 100 basis points in nine months, which is good for any market in the U.S.
If you have a building that has any manufacturing capabilities, such as a crane, or a lot of power, or that is near railroad tracks, it’s a great time to be an owner. It’s surprising how quickly we’re coming out of the industrial recession.
The market for office properties has mostly stabilized and has turned the corner. There aren’t as many vacancies coming online because the unemployment level has gone down quarter over quarter in our metro area for three quarters in a row, and that’s reflected in absorption in the office market.
We are seeing better rental increases in industrial, better sale prices relatively speaking in industrial and, if things continue, office-type jobs should see a rebound in the next 12 to 18 months.
What’s driving this trend?
Real demand is increasing because manufacturers that have survived the recession are adding capacity or are reshoring and bringing jobs back to the U.S. The increase in transportation and labor costs in China and Asia means that the financial delta between operating there and in the U.S. is not that great. As a result, manufacturers are mitigating their risks, especially in regard to quality and timely delivery, by having goods produced here.
Also, the manufacturing market is very strong because of organic growth and, especially in Akron and Canton, because of oil and gas. The oil and gas market is adding jobs and absorbing industrial buildings, and Canton has become a headquarters for office space for those in the oil and gas market, positively impacting the region.
How is demolition impacting the real estate market?
Scrap prices were high a few years ago up until last summer. When scrap prices are up, demolition increases, but prices have since come down for ferrous metals. As a result, demolition won’t increase again until the price rises above $400 per ton. There are a lot of people combing through our market looking for the next building they can demolish, but a lot of it has been picked over.
Demolition affects the market because it wipes out buildings that are functionally obsolete. Those types of properties tend to attract low-end tenants that don’t generate a lot of income tax for cities or much in real property taxes. So from a big picture, macro perspective, demolition is a nice way to clean things up.
What about repurposing?
The competition to repurposing is demolition. It’s interesting because a lot of those opportunities are gone. And now that users have real demand, they are becoming competitors to redevelopers.
I think you’ll see a little less repurposing because we are a market that likes to own buildings — put a loan on them, build up equity and sell them. In the past three or four years, it’s been hard to get a loan, so it’s been a great time to be a redeveloper buying up properties and leasing them to those who can’t get loans. Now, however, loans are easier to get, demand is real and that will slow down the redevelopment side of the world.
Is now a good time to buy?
Low natural gas prices mean that if you’re a manufacturer, you want to locate here because one of your materials is cheap. Add that to the trend of reshoring and organic growth, and now you have three demand drivers that are real, whereas in the past you only had one.
Is it a macro shift? I hope it is, because then you’re looking at something that’s generational in scope, and if that’s the case, you’d better buy something as fast as possible.
Also working to our advantage is that when people manufacture items in the U.S., they make them in the Midwest. People are coming back, and all those laborers with the necessary skill sets and the infrastructure are here, so if you’re going to bring it back, you’re going to bring it back to where it was made the first time.
Terry Coyne, SOIR, CCIM, is an executive vice-president with Grubb & Ellis. Reach him at (216) 453-3001 or firstname.lastname@example.org.
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When Hittle Landscaping Inc. lost 30 percent of its revenue during the recent housing market crash, President Jeremy Hittle had some difficult decisions to make. The first one was how to bring the $10.4 million family-owned company out of the funk. That took teamwork and some painful choices.
But equally as tough was to decide whether or not to hire a pricey leadership coach who could teach the Hittle management team the skills needed for long-term prosperity.
“It was expensive and it was difficult to spend the money in times like those, but it had to be done,” Hittle says.
“When the housing market crashed, we had to react to it quickly. Getting the upper management team together to fight the fight was a lot better than me just fighting it myself.”
The decision to hire an executive coach often requires considerable discussion. A business must tie it to an analysis of expenses, how to increase revenue and how to increase efficiency.
“You need to discuss what’s a better way to manage your business, manage your people, manage your customers,” Hittle says. “The lists will get very long and very hard to manage. How can you ask the employees to work harder? You can, but what’s that going to get you? So better leadership skills are a great way to improve efficiency, morale and communications. That’s where efficiencies come from. Efficiencies don’t just come from working harder.”
Hittle asked consultants to suggest a coach, and he hired one who had also written a book on leadership. Weekly and biweekly sessions helped the management team set goals and provided different ways to think about situations.
“It really makes a difference,” Hittle says. “There is a lot of frustration today in leadership. Frustration just doesn’t help. It’s kind of like carrying around baggage when you’re trying to be a leader.”
The personal leadership development benefits can be significant.
“It’s been great. It’s fascinating when a person does decide to consider his own leadership style, develop upon that and grow on what he’s found,” Hittle says. “I know it’s been huge for me, and I have had several employees step back and say, ‘Wow, I better understand my job now. It’s not just to tell people what to do. It’s about being supportive. It’s about accepting better who you’re managing.’”
The term “supportive” is a key operative word that is stressed in the leadership sessions.
“Employees need to know how valuable they are to the organization,” Hittle says. “You don’t want them to feel like they are employees ? you want them to feel like business owners. They all should feel like they have their own small business that they run beneath them. They feel like those beneath them are the employees that they employ, that they support, encourage and direct.”
That support helped the company reclaim 60 to 70 percent of the revenues that were lost and racked up near-record profitability for 2010.
Compassion is another focal point of leadership training.
“Listening, understanding what they want, and giving it to them,” Hittle says. “It’s not being a leader by directive. That’s not what to shoot for. Shoot for trying to nourish their needs, and your needs become their needs.
“A lot of leaders don’t quite understand it because they just want to have the first and the last say-so, and they expect it to be done that way. I don’t believe that works very well.
“Usually people that excel to a leadership position are firm-minded thinkers,” Hittle says. “They don’t realize that you have to open up, be a little vulnerable, and ask for some help and do some self development ? to try to pass along the message that we can all be better.”
How to reach: Hittle Landscaping Inc., (317) 896-5697 or www.hittlelandscape.com
Trimming and pruning
With a significant portion of its business tied to the housing industry, when the market hit bottom in 2009, Jeremy Hittle and his management team had their plates full learning how to be better leaders while they trimmed and pruned Hittle Landscaping’s operations to weather the storm.
“It was my job to not give direction but to convey a message,” says Hittle, president of the 140-employee company.
“The message was that we are in trouble, and we need everybody's help. I spent a lot of time in 2009 making sure that nobody thought otherwise. I tried to make sure that they knew that the company’s challenges were their challenges ? that we were all in it together.”
The solution was plain and simple: Everyone needed to be in concert and do some brainstorming.
“The only possible way to get out of a downturn like that was to come up with 50 ways that would help,” Hittle says.
“Obviously we had to lay off some employees, and we changed things around,” Hittle says. “Nobody worked any overtime. We worked four days a week instead of five. We saved on travel.”
Steps taken to recover from the downturn are lessons that likely will be retained.
“We are constantly working on reorganization. Even today, it’s about how we are going to change today to deal with tomorrow, just like we did back in 2009.”
How to reach: Hittle Landscaping Inc., (317) 896-5697 or www.hittlelandscape.com