research 3q 2019 cleveland industrial market...located at 16625 granite road in maple heights that...

CLEVELANDINDUSTRIAL MARKET

RESEARCH 3Q 2019

© NEWMARK KNIGHT FRANK | 2019 RESEARCH | 1

CONSISTENT MARKET PREPARING FOR LOOMING SPEC DELIVERIESThe third quarter of 2019 saw the Greater Cleveland industrial market absorb 173,530 square feet, bringing year-to-date net absorption to positive 1,135,291 square feet and giving the industrial market six quarters in a row of positive absorption.

Overall vacancy stood below 6.0% for the eighth consecutive quarter and remained essentially flat at 5.4%, contracting by 10 basis points from the second quarter despite positive absorption. This contraction was a result of the 434,000-square-foot Victory Commerce Center, located at 43500 Victory Parkway in Glenwillow, delivering vacant to the market.

The third quarter also did not witness much of a shift in the overall average asking rental rate, which at $4.71/SF was down $0.02/SF from the prior quarter but above $4.70/SF for the third straight quarter. Notably, the overall asking rental rate for the warehouse/distribution segment of the market rose $0.05/SF from last quarter to $4.58/SF. The R&D segment’s asking rental rate also rose, albeit by just $0.01/SF to $7.49/SF, while exceeding $7.00/SF for a sixth straight quarter. The general industrial segment, which has the most inventory, brought down the overall rate with a decrease of $0.04/SF to $4.20/SF. The average asking rental rate for the industrial market has now stood at or exceeded $4.00/SF for five straight quarters.

There is currently 1.74 million square feet under construction, most of which is scheduled to deliver in the fourth quarter of this year. Spec facilities comprise approximately 36.0% of the under construction set. Therefore, depending on how much space in these facilities is leased upon delivery, the market could see a larger-than-normal increase in vacancy.

The Southeast recorded the most absorption of any submarket with 105,075 square feet of positive quarterly absorption. Its vacancy increased, however, by 40 basis points from the second quarter to 4.5%. The aforementioned Victory Commerce Center was delivered in this submarket, which explains the incongruous statistics. This long-awaited big box warehouse/distribution center was one of the largest spec buildings to be constructed in recent memory, and was a result of the sufficient market demand for this type of facility in the area. Its location in an industrial hub and its desirable high ceilings, number of docks, ESFR sprinklers and other modern specifications have attracted suitors and will lead to the leasing of space in the near future.

One of the quarter’s top transactions took place here, as L’Oréal renewed its 649,250-square-foot lease at 10345 Philipp Parkway. Also in the Southeast, Atlantic | OASE announced its 176,225-square-foot lease at 125 Lena Drive. Atlantic | OASE will relocate to Aurora in the first quarter of 2020 from its much smaller facilityat 4494 Orchard Street in Mantua,

CURRENT CONDITIONS

The overall asking rental rate and vacancy rate remained largely unchanged, keeping the market stable and flat for the quarter.

The industrial market posted positive absorption for the sixth consecutive quarter.

The Southeast posted the highest absorption level and the largest vacancy increase of any submarket, an odd combination attributable to a large, unleased spec delivery.

MARKET ANALYSIS

Asking Rent and Vacancy

Net Absorption (SF, Millions)

MARKET SUMMARYCurrent Quarter

PriorQuarter

Year AgoPeriod

12 MonthForecast

Total Inventory 287 MSF 287 MSF 287 MSF é

Vacancy Rate 5.4% 5.3% 5.8% é

Quarterly Net Absorption 173,530 745,770 1.4 M

é

Average Asking Rent $4.71 $4.73 $4.23 é

Under Construction 1.74 M 2.03 M 2.30 M

é

Deliveries 434,000 1.09 M 1.4 M

é

4%

6%

8%

10%

12%

14%

$0

$1

$2

$3

$4

$5

3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 3Q18 3Q19

Average Asking Rent (Price/SF) Vacancy (%)

-2

-1

0

1

2

3

3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 3Q18 3Q19


3Q 2019 CLEVELAND INDUSTRIAL MARKET

also in the Southeast submarket. The new space at Lena will not only give the water gardening product manufacturer the warehouse space it needs, but also ample office and training space.

Proposed construction in the Southeast also dotted the headlines in the third quarter, with the two most significant projects happening near each other in Streetsboro. Geis Companies, which has developed several business parks in the Southeast, purchased two separate parcels of land totaling approximately 147 acres here at the onset of the third quarter. The company has indicated that the two parcels can accommodate buildings totaling about 2.0 million square feet within a Geis-constructed business park, but construction on any new facility will be determined once a user or users are lined up, so that the buildings can be built to suit the user(s). The other project in Streetsboro is Tinkers Creek Business Center, a 150,000-square-foot spec warehouse Business Center, located at 10069 Wellman Road, not far from the potential new Geis business park.

A $32.2 million, three-building portfolio sale occurred in the third quarter that included two buildings located in the Southeast submarket. The buyer, Brennan Investment Group, purchased the properties from AIC Ventures. The standout asset is a 345,009-square-foot complex located at 16625 Granite Road in Maple Heights that is home to Sherwood Food Distributors, which had an allocation of $20.8 million, or $60/SF. Pyramid Air occupies the portfolio’s other Southeast building, a 70,867-square-foot building located at 5135 Naiman Parkway in Solon. This asset had an allocation of approximately $3.7 million, or $52/SF.

The third building in the Brennan Investment Group portfolio is located in the Downtown submarket. This 206,471-square-foot facility, which is occupied by Maradyne Corporation had an allocation of approximately $7.7 million, or $37/SF. At 7.2%, Downtown’s vacancy remained flat from last quarter and continued to be the second-highest of all submarkets. Downtown also had the most negative absorption, albeit a modest 13,405 square feet of space that was returned to the submarket. For the year thus far, this submarket has given back the most space at negative 282,471 square feet.

Staying in the Downtown submarket, the Cleveland Vibrator Company sold its 55,000-square-foot building and multi-parcel, 1.715-acre site to a joint venture that includes local developer Snavely Group for $3.0 million. Snavely has recently redeveloped several sites in the immediate vicinity, but it has not yet divulged a plan for this site. Cleveland Vibrator will relocate over the next quarter or two to 4544 Hinckley Industrial Parkway, a 53,598-square-foot warehouse/light manufacturing facility that is also in the Downtown submarket, which the company purchased this past quarter for $2.6 million, or $48/SF.

The Northeast submarket’s vacancy rate held steady, dropping 10 basis points from the previous quarter to 4.4%, as a result of 70,958 square feet of positive absorption. The Northeast led all industrial submarkets in occupancy gains with 1,045,952 square feet of positive absorption in the first three quarters.

The Northeast also had the highest warehouse/distribution center asking rental rate in the market at $8.02/SF, up $0.22/SF from the second quarter.

One substantial lease emerged from the Northeast submarket in the third quarter, as Consolidated Precision Products (CPP) signed a 145,000-square-foot lease at 26751 Bluestone. This build-to-suit facility, which CPP expects to occupy in the first quarter of 2020, will be located within the rapidly growing Bluestone Business Park. In recent years, this business park has become home to Amazon and Lincoln Electric, among others. The lease enables the global company, whose corporate headquarters is in Downtown Cleveland’s Playhouse Square, to bring as many as 120 jobs to the city of Euclid.

The South Central submarket again had the highest vacancy rate of any submarket, which stayed flat at 7.6%. It had a modest amount of absorption at 4,897 square feet but remained in the negative in year-to-date absorption, with a net loss of 72,404 square feet through three quarters. A bright spot for this submarket was the increase in the warehouse/distribution asking rental rate to $4.58/SF, up $0.23/SF, the largest increase for this asset class. In addition, PITT Ohio is building a 100,000-square-foot trucking terminal at 5520 Chevrolet Boulevard that is expected to deliver by November.

The Southwest posted the lowest vacancy of any submarket at 2.4%, a decrease of 10 basis points from last quarter. This was a result of 8,443 square feet of positive absorption. This submarket is the future home of a distribution center that resin distributor Ravago Americas is building at 5192 Lake Road in Medina. The 506,000-square-foot building is due to deliver in October.

The Northwest submarket’s vacancy stayed put at 3.5%, though it had 2,438 square feet of negative absorption. Absorption for the year has remained largely flat, and this submarket has been consistently the most unremarkable in Northeast Ohio’s entire industrial sphere.

The Downtown submarket saw its rental rates increase to $3.09/SF, up $0.03/SF from the second quarter of 2019, yet the suburban submarkets continued to command higher rates. The Northeast submarket once again had the highest average asking rental rate of the suburban submarkets, rising $0.20/SF from last quarter to $6.20/SF. The Southeast again had the second-highest rental rate at $5.70/SF, up $0.08/SF from the second quarter. The South Central stood in the middle of the pack and remained flat from the prior quarter with an average asking rental rate of $5.39/SF. The Southwest submarket had the largest decrease of all submarkets in the third quarter. After posting the largest rate increase in the second quarter at $0.22/SF, this submarket normalized back to $4.92/SF, down $0.24/SF as the third quarter closed. The Northwest submarket again had the lowest rental rate of the suburban submarkets, and its rental rate decreased by $0.08/SF from last quarter to $3.65/SF.



SELECT LEASE TRANSACTIONS

Tenant Building Submarket Type Square Feet

L'Oreal 10345 Philipp Pkwy. Southeast Renewal 649,250

Atlantic | OASE 125 Lena Dr. Southeast New 176,225

Consolidated Precision Products 26751 Bluestone Northeast New 145,000

United Stationers, Inc. 2477 Edison Blvd. Southeast Renewal 136,966

Jamestown Container 7370 Northfield Rd. South Central New 29,000

SELECT SALES TRANSACTIONS

Building Submarket Sale Price Price/SF Square Feet

16625 Granite Rd. Southeast $20,861,117 $60.47 345,009

21555 Drake Rd. Southwest $2,750,000 $56.58 48,600

5135 Naiman Pkwy. Southeast $3,668,790 $51.77 70,867

4544 Hinckley Industrial Pkwy. Downtown $2,586,000 $48.25 53,598

4540 W. 160th St. Downtown $7,716,922 $37.38 206,471

SUBMARKET STATISTICS

Total Inventory

(SF)

Under Construction

(SF)

TotalVacancy

Rate

QtrAbsorption

(SF)

YTDAbsorption

(SF)

WH/DistAsking Rent(Price/SF)

R&D/FlexAsking Rent(Price/SF)

Total Average

Asking Rent(Price/SF)

Downtown 71,471,922 168,750 7.2% (13,405) (282,471) $2.41 $5.88 $3.09

Northeast 59,309,786 350,976 4.4% 70,958 1,045,952 $8.02 $8.49 $6.20

Northwest 22,857,489 103,527 3.5% (2,438) 40 $3.89 $6.92 $3.65

South Central 33,964,791 211,672 7.6% 4,897 (72,404) $4.58 $7.38 $5.39

Southeast 69,747,123 404,000 5.1% 105,075 119,898 $5.17 $7.18 $5.70

Southwest 29,979,213 506,000 2.4% 8,443 311,816 $4.93 $8.08 $4.92

Market Total 287,330,324 1,744,925 5.4% 173,530 1,135,291 $4.58 $7.49 $4.71


ECONOMIC CONDITIONSThe Greater Cleveland economy added more jobs through July 2019, as total payroll employment grew during the 12 months ending in July by 1.1%, which matched the growth rate for June. However, this was 40 basis points lower than the growth rates of 1.5% year over year that the United States as a whole reached for both months.

Specific industry sectors that saw employment growth from August 2018 to August 2019 included mining, logging and construction (4.4%); professional and business services (4.1%); education and health services (1.7%); government (1.3%); trade/transportation/utilities (0.8%) and other services (0.5%).

The information sector contracted the most, by negative 2.2%, followed by financial activities at negative 1.9%, leisure and hospitality at negative 1.4% and manufacturing at negative 0.1%.The nation’s unemployment rate stood at 3.7% in August, equal to that of July.

EMPLOYMENT BY INDUSTRY

Cleveland-Elyria-Mentor


3.6%

11.6%

17.1%

1.3%6.3%

14.7%

19.0%

9.8%

3.7% 12.9%

Mining, Logging, and Construction

Manufacturing

Tr ade, Transportation, and Utilities

Information

Financial Activitie s

Prof essional and Busine ss Services

Education and Health Se rvic es

Leisur e and Hospitality

Other Services

Gov ernm ent

UNEMPLOYMENT RATE

Seasonally Adjusted

CONSUMER PRICE INDEX (CPI)

All Items, 12-Month % Change, Not Seasonally Adjusted

PAYROLL EMPLOYMENT

Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

EMPLOYMENT GROWTH BY INDUSTRY

Cleveland-Elyria-Mentor, July 2019*, 12-Month % Change, Seasonally Adjusted

Source: U.S. Bureau of Labor Statistics

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics (*preliminary)

0%

2%

4%

6%

8%

10%

Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19

United State s

-4%

-2%

0%

2%

4%

6%

Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19

United State s Clev eland-Elyr ia -Mentor

Total Nonf armMining/Logging/Cons truct ion

ManufacturingTr ade/Tr ansportation/Ut ilities

InformationFinancial Activitie s

Prof & Bus Serv icesEducation and Health Se rvic es

Leisur e and HospitalityOther Services

Gov ernm ent

-5.0% 0.0% 5.0% 10.0% 15.0%

-2%

-1%

0%

1%

2%

3%

Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19

United State s Clev eland-Elyr ia -Mentor


Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents. Newmark Knight Frank Research Reports are available at www.ngkf.com/research

All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Knight Frank (NKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NGKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.


MATTHEW ORGOVANResearch and Marketing [email protected]

NATHANIEL HOOVERResearch [email protected]

CLEVELAND INDUSTRIAL SUBMARKETS

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research 3q 2019 cleveland industrial market...located at 16625 granite road in maple heights that...

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