It’s well documented by now that the Northeast Ohio warehouse market is hot, and the perfect space is becoming increasingly difficult to find. We sat down with George Pofok, CCIM, SIOR, a principal at Cushman & Wakefield | CRESCO Real Estate, to dive into the market and explain the nuances of bulk distribution and warehouse space in the Northeast Ohio market.
George, could you tell me a little bit about the current market for warehouse space in Northeast Ohio?
We’ve never seen an industrial market with this much demand. We have more tenants looking for space and companies that are growing using almost all available space. So, companies without a plan for their growth, need a plan. If they don’t have a plan, they’ll have to settle, or worse, wait.
The overall vacancy rate for the industrial market is about 3.1%%, which is historically low. We’ve been hovering between 3.4% and 3.8% for the last three years.
In the Northeast Ohio market overall though, we have about 520 million square feet of industrial space, and that is a combination of two things. One is multi-tenant space, which is your smaller two-to-ten thousand square feet, occupied a lot of local entrepreneurial type companies, and some satellite offices for larger regional and national companies. We also have what we call Class A Distribution Buildings, which account for about 15% of the market.
So there’s a shortage of warehouse space?
Yes. New construction will help. But even with planned new construction, we still have a shortage.
We need to also consider bulk distribution space though. It’s like warehouse space, but suited for a different sort of user, like distribution companies or tenants who need to ship goods to businesses or consumers. Bulk distribution space typically has a small, dedicated office area, and has fewer parking spots on account of less employees and customers.
Would you say that creates investment opportunities in warehouse and bulk distribution space?
The warehouse and bulk distribution market from an investment perspective is as hot as it’s ever been. Our capitalization rates in Cleveland are higher than in Chicago, Atlanta, LA/Long Beach because the competition in Northeast Ohio isn’t as scarce as in those markets, so it creates a great opportunity for folks outside of the region. What we’ve been seeing is there’s a lot of money in the market, and folks that haven’t been to Cleveland before having invested a lot of money in Northeast Ohio.
Are there any specific locations that you recommend in Northeast Ohio?
It changes and evolves. Right now, the two most active submarkets are the Southeast, which is the Solon, Glenwillow, Twinsburg area, which seems to have more of the newer more modern bulk distribution product. You have I-480 and I-271 and the Ohio Turnpike, so the freeway accessibility within that region is very strong.
The other [submarket] is the Southwest, basically anywhere from Brook Park through Strongsville, and even a little bit down into Medina. Similarly, you’re capturing I-480, I-71, and the Ohio Turnpike. So yes, a lot of it is definitely related to freeway accessibility, specifically when you get into warehouse distribution.
What are some important factors a business should consider when choosing warehouse and bulk distribution space?
Well, this is going to depend on what kind of business you run, but one of the most important things we see is clear height, which is the usable height that a tenant can use. Today, 32’-36’ clear heights are pretty common in most newer facilities, which allow more space and efficiency in the same footprint. Why stack 3 or 4 high when you can stack 6 or 7 high?
But now you need to move your product, so we have to make sure that you have an ample amount of truck docks and appropriate-sized doors. Today, most doors are 9 feet by 10 feet, but there are a lot of older facilities where these doors are 8 feet by 8 feet, which doesn’t translate well for shipping containers, so it sometimes creates an issue offloading.
One last thing that bulk distribution and warehouse buyers are considering, now more than ever with inflation costs for materials, is the condition of the roof. Here’s why that matters. A lot of leases, not all, are structured in a way where the landlord has to take care of the roof. These bulk distribution and warehouse facilities are usually about 200,000 square feet and single-story, which is a lot of roof, and a lot of money. Tenants and potential buyers need to always make sure they’re getting that roof inspected because it can cause a lot of costly problems down the line.
What is the benefit of working with a commercial real estate broker to find bulk distribution space?
Market knowledge. We’re on the streets on a day-to-day basis and we’re working with tenants across the market. Our team, for example, we have a lot of listings throughout the market so we’re receiving calls on buildings daily, and it may not work for the particular building they called off of, but we’re able to shift the client to another potential listing.
We’re also getting calls and knowing who’s out there in the market, and if we know of a space that’s about to become available, that nobody else does, we can reach out and try to back-fill that space pretty quickly.
The takeaway? TLDR: we’re seeing a significant shortage of warehouse space, outside investors are becoming wise to the promised land of Northeast Ohio, the size of your doors can have a huge impact, oh, and your roof? It can be a costly nightmare.
All of these nuances are best left to a professional. Our team of industrial brokers have decades of experience in the Northeast Ohio market. Call us today or contact us here to discuss your individual business needs.
To learn more about how CRESCO, Greater Cleveland’s leading commercial real estate company, can help you with your property needs, contact us at 216.520.1200, or fill out the form below. A CRESCO professional will contact you shortly.