It’s an uneven real estate picture in the Greater Cleveland area. The industrial market is incredibly tight with a record-low vacancy rate — around 3.8 percent — that’s creating significant challenges for those looking for properties.
Office space is plentiful. With many companies’ workforces yet to return, there’s been an increase in sublease as tenants look to make use of unoccupied space. It’s a strategy Eliot Kijewski, senior vice president of Cushman & Wakefield | CRESCO Real Estate, says is really about buying time until people come back to offices, the lease expires, or the office tenant finds a new right-sized space.
“A tenant could have 20,000 feet that they’re subleasing,” he says. “The landlord is still getting paid rent, but no one’s showing up to go to lunch downtown.”
Much the same is happening in retail. Properties are available, but macro factors are affecting occupancy. For instance, many people are now far more comfortable ordering products online. That’s shifted how retailers use their brick and mortar buildings, with some converting their space to fulfillment centers.
“More retailers that had set themselves up for consumer traffic are now playing the just-in-time game,” Kijewski says. “Some of them are taking 100,000 square feet of warehouse and dedicating it just to inventory.”
Further complicating the real estate picture is the materials crunch. Timelines have been extended for new construction and renovations as materials have drastically increased in price and are increasingly tough to come by.
Smart Business spoke with Kijewski about the real estate situation in Greater Cleveland.
What are seekers of industrial properties finding today?
Industrial properties are practically non-existent ,and it’s been that way for the past nine months. That issue is being exacerbated because the cost to build has gotten more expensive — land is more expensive, and so are the materials and labor required for both new construction and renovation.
Buyers are either paying much higher prices or they’re making sacrifices in space or amenities to ensure they get what’s absolutely necessary for their operations.
In 2019, there were some landlords and buyers who found success converting unused office and retail space into industrial to take advantage of the tightness in that market. However, with the material issues, combined with structural limitations, that’s off the table. Additionally, most everything that’s been built on spec in Northeast Ohio is getting leased by the time the final coat of paint is on and the lock is installed.
What’s happening in office and retail?
The office and retail situations in Greater Cleveland are the complete opposite of the industrial situation. Those who are looking to do a retail or office transaction are going to get a deal in this environment. Landlords, however, aren’t as willing to make the same concessions as they had when the pandemic hit. In March and April of 2020, landlords were eager to work with tenants, offering a few months of free rent in exchange for a tenant adding a year or two to the term. Those enticements have largely ended. But still, those looking for office or retail space have a lot of options, and there is exceptional pricing and other incentives out there.
How is the materials crunch affecting the real estate picture?
The lumber, steel, concrete and glass required for renovations and new construction could have at least a three- to nine-month backlog. Companies that aren’t dealing with a builder or a contractor that has an inventory of these items should expect delays, and it’s unclear when that will work itself out. There are materials sitting at ports that need to be shipped, which means getting trucks on the road. It’s also about getting people back to work. Some indications suggest that material availability could improve by the end of the year, but it’s more likely that the current conditions persist into the first or second quarter of next year.
The bottom line is business leaders have got to be prepared. Expect delays and build that into the timeline of the move or renovation. And get everything scheduled and ordered as soon as possible. Then be ready. The instant things start opening up again, you’ll need to act quick.
INSIGHTS Real Estate is brought to you by Cushman & Wakefield | CRESCO Real Estate