It’s a strong market for new industrial construction in Northeast Ohio. There is about 5.8 million square feet of new industrial construction — ground-up construction or additions to existing buildings — currently under way, which will add to the existing 517 million square feet of industrial product within that market sector. That new construction breaks down to 1.6 million square feet in speculative properties created by developers and 4.2 million square feet that’s build-to-suit, and demand is not slowing.
“We’re going to see the most new construction deliverables the market has ever seen from both a square footage and number of projects perspective” says George J. Pofok, CCIM, SIOR principal at Cushman & Wakefield | CRESCO Real Estate.
Given the progressive strength of the industrial market, save for a slight pause during the pandemic, companies looking to build here may face timeline-disrupting headwinds, unless they have a plan.
Smart Business spoke with Pofok about the industrial real estate market, the conditions creating the tightness and how to navigate the situation to get results.
What does the market look like today?
During the past nine years, there’s been about 26 million square feet of new industrial space brought to the market. Before it really began tightening up 2018, the asking rental rate for new construction projects was averaging around $5.50 per square foot. Today, the going rate is $6.75 a square foot for warehouse space — about a 22 percent increase.
COVID was a speed bump in the progress of the industrial market, largely from a material supply perspective. The availability of materials has been an issue — the challenges getting concrete panels, steel, roofing materials, etc. That’s leveling off in some areas, such as steel, but in others, like roofing materials and insulation, challenges continue.
Also, the vacancy rate in this sector at the end of the first quarter is down to about 3.3 percent, which is the lowest historically that Northeast Ohio has ever seen.
What property types are most popular right now?
Distribution is seeing the greatest demand. There still are some manufacturing facilities being constructed but most of the new product is for distribution as more companies need warehousing.
Another trend is the shift of more industrial construction to the suburbs because of the lack of available and developable industrial land in the urban and inner-ring areas. Those who need a large tract of land for a larger facility are likely going to have more success out to Medina, Portage and Summit counties where more land is available. And it’s expected that construction will push even further out, with some exceptions where old industrial properties are bought and razed and/or repurposed.
Developers are buying up land, getting it prepped and ready to go. That’s because lines on a paper don’t attract tenants as much as being able to see a building under construction. The demand is such that a couple million square feet of new space can be built and have very little impact on the overall vacancy rate. Outside developers are taking notice, and some are now building here that have never previously been in this market because the opportunity is so great.
How have real estate prospects been affected?
These factors have prospects primarily concerned about timing. A company looking at new construction likely won’t get into a new building for 12 to 18 months. Prospects are also very interested in incentives, such as real estate tax abatement or payroll tax abatement. Each municipality throughout the region is different in what they’ll offer and the speed of the approval process.
Companies looking to build industrial properties in this market need to be well ahead of their timeline and demands for square footage because the lack of shovel-ready property within the market makes speed a challenge. Work with a knowledgeable real estate broker to quickly identify not only move-in-ready facilities and shovel-ready land, but also to connect with governments on potential incentives to lower the burden of creating jobs and generating tax dollars. It’s a very competitive market, so having expert guidance is key to quickly getting projects done. ●
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