The Akron/Canton area has seen a lot of commercial real estate activity recently. The area’s industrial vacancy rate has gone down slightly, from 8.7 percent last year to 8.5 percent this year. While that rate is slightly above the Cleveland market’s 8.2 percent, it is still well below the national average of 9.7 last year and 9.2 percent this quarter. The office vacancy rate sits at 10 percent this year, up from 9.3 percent last year but still below the national rate of 12.1 percent this year.
Some of the biggest news out of the Akron/Canton area includes the expansion of Struktol. The rubber and plastics supplier is expanding its operations in the area and recently leased 97,000 square foot in Stow, in addition to its existing space in that area. Also illustrating industrial growth in the area, The Timken Co. recently moved into 28,000 square feet of additional space to expand its operations.
Smart Business spoke with Terry Coyne, SIOR, CCIM, an executive vice president with Grubb & Ellis, about real estate trends in the Akron/Canton markets.
What are the factors behind the changes in the office vacancy rate in Akron/Canton this year?
Office space is typically a lagging indicator and industrial space is a leading indicator. The region is experiencing significant occupancy by new players in the oil and gas industry. Without them, the vacancy rate would rise.
While the vacancy rate for manufacturing has remained flat from the year prior, sizable companies such as Struktol and Timken are expanding.
The increase in the office vacancy rate seems to be correlated with an jump in total square footage in the region, which increased by 268,813 square feet in the second quarter. It therefore seems that the increased vacancy rate could be due to new construction that has not yet been filled, or from companies that have moved into newly constructed buildings and vacated their previous building.
What is the news beyond what the numbers reflect in manufacturing real estate?
A lot of vacancies have been bought up. Getting someone in the large Lockheed Martin building was fortunate, but there are also some emerging trends that are leading to these numbers. First, many manufacturing companies are reshoring, meaning they are moving production from abroad back to the U.S. Second, the oil and gas industry continues to attract business. Third, many existing manufacturing buildings are being razed, which is reducing the inventory and shrinking the market for existing properties. This causes vacancy to go down and rents to increase. Although the industrial numbers appear flat, the market is improving.
In the Akron/Canton market, existing buildings are filling up with tenants. What does that say about commercial construction in the area?
It’s really very hard to get financing for the speculative construction of office buildings. The area will continue to see rents increase and vacancies decline until banks decide they will provide the loans necessary for the construction of speculative office buildings. What will likely happen is that more businesses will begin building to suit themselves. But the interest rates that make this the best case scenario are not there yet, and many companies are hampered by the amount of equity they need to get a loan, which can be near 30 percent.
The area will likely not see a substantial pace of speculative office building construction for another two and a half years. While this might not be good for construction companies, it is good for landlords who will benefit from increased occupancy and the ability to charge more for rent as the market tightens.
How is the Akron/Canton area real estate market faring compared to the nation?
Net absorption rates in the Akron/Canton area in the second quarter were 651,525 square feet for industrial properties and 25,662 square feet of office space. This year, to date, absorption for industrial properties is at 1,447,517 square feet and office properties are at 111,678 square feet.
Conversely, the industrial vacancy rates in the Akron/Canton area have improved slightly, from 8.7 percent this past year to 8.5 percent this year. In comparison, the national vacancy rate was 9.7 this past year and has shrunk to 9.2 percent this quarter.
Looking at office vacancies, the Akron/Canton saw its rate of 9.3 percent last year, grow to 10 percent this year. This opposes the trend that is being experience across the U.S., which had office vacancy rates of 12.5 percent last year that tightened to 12.1 percent this year.
How do you expect the year to finish in both office and manufacturing real estate?
I expect that you will continue to see a decent pace of absorption on the office side, but industrial absorption will slow.
In terms of new construction, we’ve seen industrial slow down and office keep its pace. There haven’t been any sizeable properties shutting down recently and there’s not a lot of unsettled market right now. In that sense, the good news is that the bad news is over. In 2010, we hit bottom and all the negative noise that appeared every day of another building shutting down has stopped.
Getting rid of any dilapidated supply — when it holds more value as a commodity than as an underlying asset — helps underlying asset values. While it can be understood that razing existing buildings might hurt because it increases the price of existing properties, pricing in this area is still extremely low. If you are looking for office space, it’s tough to find a better deal than in the Akron/Canton area.
Terry Coyne, SIOR, CCIM, is an executive vice president with Grubb & Ellis. Reach him at (216) 453-3001 or [email protected]
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