In the Northeast Ohio commercial real estate market, there are many challenges. For those who have the right strategy, there are also opportunities.
Smart Business spoke with Joseph V. Barna, a principal at Cushman & Wakefield | CRESCO Real Estate, about how to get what you want out of today’s commercial real estate market.
What’s happening with office properties?
Office users are looking for time, patience and flexibility from landlords right now as they pause, rethink their space needs and determine their future needs. Some companies’ offices are only accommodating skeleton crews to keep a presence while most of their people work from home. That’s led to a tremendous amount of subleasing and underutilized space as some landlords worry about how they’re going to pay their mortgage and tenants try to figure out how they’re going to meet their commitment to their landlords.
How are industrial users and owners faring?
The industrial sector is coping with supply chain issues as well as accelerated demand, so there’s high demand for industrial properties, especially for mid-sized owner-operated shops. However, there’s also an extreme lack of property available in the market that’s driving prices up. Demand is high, so when a building meets a buyer’s requirements, it’s essential to act quick.
Nearly every property is experiencing multiple offers. That can be problematic for large organizations that have a process for approval. In some cases, when a buyer of this size loses a deal, it becomes clear that they need to accelerate their approval process or they’re going to continue to lose out on limited opportunities.
With the exception of some big box development by a few developers, there’s not much other speculative construction happening in Northeast Ohio. That’s in large part because the cost of construction has increased so much that it doesn’t make sense to build unless the property is more than 150,000 square feet. Such a big product isn’t something the everyday entrepreneur can or should commit to.
Amplifying these problems in industrial is an extreme shortage of shovel-ready land. Buyers are running into properties that lack basic infrastructure, are environmentally challenged, or have zoning issues. Typically, in a market as tight as this, developers come in and buy large parcels, make improvements and sell it off a few acres at a time. Right now, however, that’s not happening. Land sales are slow, the cost of construction has increased, and developers don’t want to sit on the land. That’s creating a hole in the market.
What strategies can be used to offset these issues?
To try to offset these challenges, some office space can be converted to an alternative use such as residential. When done right, that can be a smart move that’s great for the city as people continue to look for living spaces in or near downtown. It’s best for office owners and users to stay flexible and open to new ideas in order to capitalize during this uncertainty.
On the industrial side, those in need of property and buildings should look to redevelop vacated retail centers or mall properties. In a few cases, a developer has come in and demolished the existing property and then focused on built to suit. These properties don’t have the environmental concerns that old industrial properties might have. They also have infrastructure in place and are usually close to highways.
And because new construction is a significant investment, partnering with a developer or institutional group could be a logical solution. Those who own a business and don’t want to put every penny they have in the real estate can team up with a developer in a master plan development where they’ll either lease or take an ownership position in a much larger development. A developer that has the wherewithal, experience and buying power for such a project should be able to this more cost-effectively than someone who is looking just to create a space to run their business.
Also, look into taking advantage of state or municipal financing, tax breaks or other incentives. A real estate firm with a dedicated group of individuals that understand these incentive programs can guide you through the process.
Insights Real Estate is brought to you by Cushman & Wakefield | CRESCO Real Estate