Strong demand, tight supply will continue for industrial real estate in 2022

Northeast Ohio closed out 2021 with 3.57 million square feet of industrial space under construction. But don’t expect new buildings to spring from the ground swiftly this year, said Terry Coyne, a vice chairman at the Newmark real estate brokerage.

Though there’s an additional 2.97 million square feet on the drawing board in the region, rising construction costs and long wait times for materials are delaying completion dates. That’s shifting the timeline for speculative buildings — projects being developed based on the strength of the market rather than commitments from specific tenants.

“New construction, spec delivery is not going to happen much in 2022,” Coyne predicted. “A lot of it is getting pushed to 2023.”

Industrial vacancy in the region was 5% at the end of 2021, according to a newly released fourth-quarter report from Newmark’s Cleveland office. Vacancy has hovered at or below that level for more than a year, driving demand for new space and presenting challenges for site selectors and tenants.

Hunger from manufacturers and distributors alike, coupled with the limited inventory of move-in-ready buildings, is pushing rents higher. The average asking rate for industrial space in the region was $4.80 per square foot during the fourth quarter, up from $4.46 a year before, based on data compiled by Newmark researcher Matthew Orgovan.

Newmark predicts that rents will hold steady and vacancy will stay low this year.

“It’s still a landlord’s market. It’s still a seller’s market,” Coyne said. “And the increase in costs for new construction is driving the values of existing buildings a lot.”

Buyers wrapped up a handful of significant deals during the final months of 2021.

A joint venture formed by Weston Inc., the DiGeronimo Cos. and Scannell Properties paid $8 million for a former Ford Motor Co. stamping plant in Walton Hills, public records show. The same group purchased a mothballed Ford complex in Brook Park, near Cleveland Hopkins International Airport, for $31.5 million in May. Both properties will become multi-building business parks.

And Premier Development Partners sold a notable portfolio, in a transaction that spanned multiple cities and almost 3 million square feet of buildings. Newmark’s research puts the scope of that sale at 15 properties and approximately $201 million. The buyer was an investor group led by Morning Calm Management of Boca Raton, Florida.

Expect the momentum to continue in 2022, said Coyne, who is seeing strong interest from prospective tenants at large properties including the I-X Center, the mammoth Cleveland venue being repositioned as a hybrid event-and-industrial space, and the soon-to-be-vacant Kichler Lighting headquarters complex in Independence.