Leasing Activity in Cleveland's Industrial Market Tumbles to Decade Low
It comes as vacancies dropped.
Cleveland’s industrial market has produced mixed results for the second quarter, as demand is low but occupancies are on the decline.
Leasing activity in three months through June in the area slipped to roughly 880,000 square feet, which is the first time it hit levels that low in a decade, according to a report from Newmark. The figure was pegged at 1.6 million in the first quarter.
“The market has softened from an oversupply of inventory that came to market between 2018 and 2023,” Newmark wrote.
Interestingly, the low demand came even as Clevaland’s industrial market enjoyed 879,971 square feet in positive absorption. That caused the vacancy rate to drop by 30 basis points to four percent compared with the first three months of the year. Only 72,000 square feet worth of new product was delivered in the second quarter.
While sublease activity increased from the the first three months to 914,502 square feet, it’s still below the 2012 to 2019 quarterly average of over 1 million square feet.
The biggest lease sale in the quarter went to Royal Oak Realty Trust, which bought Riddell Sports Group’s North Ridgeville facility. The 347,000-plus square foot building was scored for $36.5 million.
As far as asking rents go, the $6.22 per square foot price was a new all-time high – but only inched up by one cent from the first quarter. The first half overall saw a 6.7 percent year-over-year boost in asking rents.
The industrial segment isn’t just a Clevland problem. In fact, a recent CBRE report noted that there could be “turbulence ahead” for markets with large amounts of new square feet under construction.
Phoenix, which won’t have a third of it finished until next year, is the leader at 33 million square feet. Some others ranked behind the city include Dallas, Houston, Atlanta, Riverside, Savannah, Austin, Las Vegas, Chicago, Boston, Kansas City, Philadelphia, Forth Worth, Indianapolis, and Greenville.
That said, Newmark predicts Cleveland’s industrial market will rebound within the next year and a half.
It will “ rightsize itself in adapting to the surplus, especially as construction starts continue to either be delayed or projects [get] canceled,” the commercial real estate advisor said.
“As a result, with much less new inventory expected the Cleveland industrial market should reach equilibrium in 12 to 18 months.