Businesses looking for office space should consider expanding their real estate search to Akron and Canton.
“There was a perception, although totally unfair, that the market was dying,” says Terry Coyne, SIOR, CCIM, an executive vice president with Grubb & Ellis. “However, the numbers clearly show that the vacancy rate has actually gone the other way. Both the Akron and Canton markets are actually on the upswing, and coming back strong.”
Coyne says the Akron and Canton office markets are experiencing a remarkable rebound and businesses that are ready to buy or lease office space would be best served to do it now, as rates continue to decline.
Smart Business spoke with Coyne about what makes Akron and Canton’s markets unique, and how it affects real estate performance.
What should businesses know about Akron and Canton office real estate markets?
Currently, there is a resurgence in the office market for both Akron and Canton. The Akron market offers good office vacancy, because there is no new construction and the service sector is coming back. Also, Akron is benefiting from the rebound in financial services, which explains the nice office market there.
Canton’s office space is tighter than Akron’s because there is no new construction in Canton and Chesapeake Energy and VXI Global Services recently purchased a lot of the previously available space. Between those two companies, you have a remarkable rebound in downtown Canton.
How do Canton’s office buildings compare to those throughout Northeast Ohio?
The average office building in Canton is relatively small, at 29,338 square feet. By comparison, office buildings in the Cleveland area average over 55,000 square feet. So the smaller building size is the first notable trait of Canton’s office market. The average age of a building is 43 years, which is on par with other parts of Northeast Ohio. Price per square foot is lower in Canton than in Cleveland as well. Canton office space has recently sold for an average of $49.11 per square foot, about 14 percent less than Cleveland’s $56.95 per square foot. The vacancy rate in Canton is significantly lower than other parts of NE Ohio; Canton’s vacancy in office property is 12.1 percent, whereas other parts of Northeast Ohio have vacancy rates in excess of 22 percent.
Why is Canton outperforming other parts of Northeast Ohio?
Part of the answer is that Canton did not experience the speculative construction boom caused by increasing real estate prices in the 2000s. Although Canton did see a fair amount of construction in the 2000s and 1990s, the busiest decade for construction was the 1980s.
However, construction alone does not tell the whole story. Because the average building size is much smaller in Canton, a higher percentage of buildings are single tenant and owner-occupied. Building owners taking up their own space effectively limits the supply of space and helps to keep the vacancy rate low.
What should businesses know about the Akron office market?
In the office market, Akron is outperforming much of Northeast Ohio with a vacancy rate of just 13.4 percent. Canton does have a lower vacancy rate, but Canton’s office market is smaller and not comparable to Akron. The average office building in Akron is 58,317 square feet and 42 years old.
Akron’s low price when compared to Cleveland helps to explain the lower vacancy rate. Asking rental rates average around $16 per square foot, and the asking sale price is around $55 per square foot. Akron’s geography is another factor: its concentration of highways make it well-situated for access to Cleveland, Canton, the East Coast and the South. The presence of large occupiers of space is the final piece in the puzzle. Goodyear and First Energy are just two of the many office users in Akron, yet these two companies combine to occupy 9.2 percent of all Akron’s office space. With large users taking almost one-tenth of space off the market, it is more likely that the vacancy rate will stay low.
What market changes can businesses expect in the future?
Canton’s office market is not the largest in Northeast Ohio, but it is certainly one of the best performing. As the local and national economy improve, it seems reasonable to expect that Canton will continue to experience low vacancy rates, and could even see some speculative construction in the years to come.
Like the rest of Northeast Ohio, Akron stands to benefit from the continued growth of manufacturing. As manufacturing companies grow and become more profitable, the infrastructure available in Akron and throughout Northeast Ohio will offer an attractive location for businesses. ‘Onshoring,’ rather than offshoring, is all the rage.
Akron’s significant number of distribution and warehouse facilities can also expect to see an increase in value as the economy recovers and companies require more space to house and ship inventories. The only potential roadblock is presented by energy prices. If the price of gasoline continues to climb, highway distribution will become less attractive as companies turn to more energy efficient methods of shipment, like rail. Natural gas prices have fallen significantly due to the exploration of shale across the country; if these prices continue to fall, it will halt exploration, as it becomes unprofitable to extract gas at such low prices. Though there are potential pitfalls, Akron looks well-positioned to take advantage of the economic recovery.
Insights Real Estate is brought to you by Grubb & Ellis