The Cleveland industrial market continues to hit new heights – or new lows, depending on how you look at it – thanks in large part to the growing demand for ecommerce.
The latest research from JLL found that the industrial vacancy rate in the Cleveland market fell to 6.4 percent in the first quarter of the year, while the average asking rent for industrial facilities rose to $4.13 a square foot.
And in more good news? Industrial construction in Cleveland has reached its highest point in 21 years. JLL reported that more than 1 million square feet of new industrial construction is planned for the area.
Andrew Batson, director of research with JLL, said that e-commerce continues to drive demand in the Cleveland industrial market. Speculative industrial construction has not kept up with this demand. That has led to the current construction boom hitting the area.
“E-commerce continues to power this sector,” Batson said. “At the same time, the economy is on a bull run of more than 10 years. Production levels are up at companies. Balance sheets are strong. Companies are investing in real estate and production.”
Batson said that easier access to financing is also providing a boost to Cleveland’s industrial sector. It’s easier today for developers to get the funds they need to get buildings out of the ground, he said.
David Stecker, vice president in the Cleveland office of JLL, said that the evolving shopping habits of consumers have pumped up industrial activity, too.
“Cleveland has been the beneficiary of next-day, same-day, last-mile initiatives,” Stecker said. “In the past, our market might have been serviced out of Columbus or Indianapolis. Now folks are building distribution centers in Northeast Ohio, too.”
Batson said that spec industrial construction has lagged demand in Cleveland, another reason for the surge in construction activity. There simply isn’t enough modern industrial space in the Cleveland market today, Batson said.
There has been steady spec industrial construction in other big Ohio markets, in and around cities such as Columbus and Cincinnati. In Cleveland, though, development has been far more conservative. Developers are now reacting to this, and pumping more industrial supply into the area, Batson said.
“When you have these lower vacancy rates, that gives developers confidence,” Stecker said. “They know that if they are to build a building on spec, it will lease up and stabilize. A number of developers over the last 36 months have proved the theory that if you build it, they will come.”
The southeast quadrant of the Cleveland industrial market has been especially strong for new construction. Batson pointed to the available land in this submarket and strong financial incentives designed to encourage developers.
The strong industrial market has led to one particularly important industrial project in Northeast Ohio. The Victory Commerce Center is a 430,000-square-foot Class-A industrial project being developed in the Diamond Business Park in Glenwillow, a community about 20 minutes from Cleveland.
This project will rank as the largest speculative industrial development in Northeast Ohio’s history. The building is expected to come online this year.
Stecker said that the bulk of the spec industrial construction in the Cleveland market has been in the 127,000-square-foot to 210,000-square-foot range. These buildings are designed to accommodate smaller users. The Victory Commerce Center, though, is different. It can accommodate users needing anywhere from 100,000 square feet all the way to 430,000.
Stecker, who is the leasing agent for the center, said that the interest in the Victory Commerce Center has come from a number of different sources. There are plenty of users now operating under multiple roofs in Northeast Ohio, Stecker said. These companies might have evaluated consolidation efforts in the past. The Victory Commerce Center offers these users a new option, Stecker said.
“They might have kicked the can down the road and remained under multiple roofs,” Stecker said. “They haven’t been able to pick up the efficiencies associated with operating in one facility. A number of those users are now looking at Victory as an opportunity to consolidate.”
What makes Cleveland such an attractive market today for industrial users? Batson points to the lower costs of doing business here and the city’s prime Midwest location.
“You have lower costs in terms of labor and the underlying ground,” Batson said. “It is much more affordable here than it is on the coasts. You have our central location. You can reach more than half of the U.S. population in a day’s truck drive. On the labor side, you have a culture that is ingrained in the manufacturing and production space. It is high-tech manufacturing now, yes, but it is still ingrained in our blood here.”