HEARTLAND SNAPSHOT, FEBRUARY 2006

Cleveland Industrial Market

Light manufacturing flex buildings have been the product trend in the Cleveland industrial market for some time. Users have the option of leasing small spaces of approximately 2,000 square feet or larger spaces of approximately 100,000 square feet. In Cleveland's industrial market, flexibility is key. “In this ever-changing market, you have to build with flexibility,” says John Chluda, a sales associate with Cleveland-based Chartwell Group.

Cleveland's industrial sector experienced a down market in 2004 and 2005, which spurred a lot of in-town activity among tenants of all types, with companies moving to better locations or occupying spaces that offered more suitable layouts. Landlords/owners are seeking to fill vacancies with “anything that pays the rent,” from light manufacturing to warehousing, Chluda says. “The soft market for the last 2 years gave tenants the opportunity to shop for a better fit.”

Two projects illustrating this flex movement are underway within the 1.3 million-square-foot Emerald Valley Business Park in Glenwillow, Ohio, and the Strongsville Business Park on Morgan Court Road in Strongsville, Ohio, which currently totals 317,552 square feet in two buildings. Duke Realty Corporation owns and operates both parks. With Duke pulling out of the Cleveland market within the next few years, the area's industrial market will open up and present great buying opportunities. First Industrial Realty Trust has purchased approximately 2 million square feet of Duke's older industrial inventory. In a transaction negotiated by the Chartwell Group, Dan Moore purchased the 600,000-square-foot Nottingham Business Campus and will occupy a portion of the park and sell or lease the remaining buildings.

The stronger submarkets for industrial activity remain the south, southeast and southwest, where the majority of new development is currently taking place. New projects are underway in Emerald Valley, Canal Center II and along the Streetsboro corridor in Richfield, Ohio. According to Chluda, the cities of Avon, located west of Cleveland, and Seville, located south of Cleveland, have experienced positive growth in recent years and have the potential for more.

Presently, vacancy for the entire Cleveland area stands at approximately 9 percent. The vacancy rate in downtown Cleveland is slightly higher and measures approximately 12 percent. According to Chluda, rental rates for first-floor space range from $3 to $4 per square foot, but beyond that, rents can vary and are primarily driven by the tenant, its space requirements and the length of the lease.

Recent leases completed in the Cleveland metro area include Clark Products' lease of 70,000 square feet at 1350 Rockefeller Road in Wickliffe, Ohio; YXLON International's deal for approximately 60,000 square feet at 3320 Gilchrist Road in Mogadore, Ohio; and Innovex Inc.'s 50,000-square-foot lease at 34929 Curtis Boulevard in Eastlake, Ohio.

“I feel this will be a strong year; we experienced good absorption in 2005, which has paved the way for new product to come online,” Chluda says. “The city of Cleveland is reinventing itself with a number of projects that will improve its image and the areas around it.”

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