Tariffs, which have been set at the highest rates since 1938, have created uncertainty for warehousing companies doing business in Northeast Ohio. Federal policy has made the future unclear for those who are importing materials and goods, causing many of these businesses to freeze their growth plans, experience high non-labor costs, and caused hiring freezes or a downsizing of their real estate holdings. While that’s a troubling situation, it’s also created opportunity for those who are on the hunt for this rare and valuable property.
Smart Business spoke with Eliot Kijewski, a Principal at Cushman & Wakefield | CRESCO Real Estate, about how tariffs have affected warehousing real estate, and the opportunities this situation creates.
How are tariffs affecting warehouse real estate and the businesses that use it?
Though these tariffs directly impact warehousing companies, some of these companies are holding considerable inventory in Northeast Ohio for many other businesses. That inventory in many cases is either being held in these warehouses longer because it’s nearly impossible to predict when the tariffs will be in place or when they’ll be lifted, or has been dramatically reduced as companies shift focus or strategy. That is disrupting business well outside of these designated areas and making it an incredible challenge for companies to forecast. It’s also hurting leasing demand.
The vacancy rate in this sector of real estate has been tight for years, seeing vacancy rates as low as 2.8 percent. Now, this area is about to see vacancy rates that exceed 4 percent.
Companies that have downsized or that are no longer able to commit to the plans they made at the start of the year have opened up a few million square feet of foreign trade zone warehousing space. Further, as the tariff situation has led many to freeze their business and their inventory, companies are unable to roll the dice with new suppliers who could suddenly and unexpectedly be hit with tariff rates that double the cost of materials (manufacturers should consider entering into ‘no fixed price’ contracts to protect profits), so many businesses have decided not to expand. And those that want to expand and need real estate have changed or canceled their plans because making such a significant investment in this climate carries too much risk.
However, it’s also true that the struggles and risk-aversion of some companies have opened up prime land, which does not often become available in Northeast Ohio. That’s created a significant opportunity to take over some of this coveted real estate. Those who are willing to take the risk will be rewarded.
How can companies position themselves to take advantage of warehousing real estate opportunities that arise from this situation?
Companies that are looking to scoop up some of this newly available prime warehousing real estate should do their homework. Pay attention to the news. Look for changes in pricing and react as soon as possible. Those that have a broker who has their finger on the pulse of this sector of Northeast Ohio real estate will not only benefit from their knowledge of the situation, but such a broker can help them strike quickly when an opportunity arises.
This is valuable land. As soon as it becomes available, there’s going to be a lot of competition to buy it. So, while there is a lot of trepidation now freezing the market, there could be a boom later.
It’s a big challenge for those in this market to determine how best to approach this opportunity. An experienced broker can be a major asset, assisting companies that need warehousing, and possibly warehousing in a foreign trade zone. Given the uncertainties, it’s important to be ready when the right opportunity presents itself. ●
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