A few trends we have seen are the development of smaller in-fill type parks. Rather than purchase sites to accommodate 300-acre planned parks, which are difficult to find north of the turnpike, the focus is on absorbing sites closer to the city of Cleveland. The Cleveland market historically stops at Interstate 80, where Akron begins, and the need to develop land north of the highway has forced developers to focus on smaller sites that were originally passed over. An example would be Geis Development’s new 85-acre industrial park in Parma. Geis usually likes 300 acres or more, enabling the company to spread the development costs over a larger area, but this park was a good location and closer in to the center of town.

“Typically, Cleveland is more a manufacturing town than distribution,” says Terry Coyne, senior vice president of Grubb & Ellis’ Cleveland office. Development cannot go north in Cleveland because of Lake Erie, which makes distributing product costly. Most businesses find it better to locate their regional distribution center in Columbus or Indianapolis rather than Cleveland. A large distribution center, like a 400,000-square-foot facility with 32-foot ceilings, is unusual for this market. A typical deal is 60,000 square feet purchased by an entrepreneur who owns his business and wants to build up equity by owning the building.

“This makes the recent announcement of Sysco Foods’ intention to build a regional distribution center in Cleveland all the more substantial,” Coyne says. Sysco Foods is currently located in Bedford Heights and is moving into the city of Cleveland. The company’s relocation is the largest new employer to move into Cleveland in 30 years, bringing 650 jobs, a $32 million dollar payroll and a plan to grow 8 to 10 percent a year. The company purchased 55 acres at the Cleveland Business Park owned and developed by Chelm Properties. “I represented them in the search and we looked at every site under the sun, but Cleveland had a great location and was aggressive with tax abatement,” Coyne says.

Of what little new industrial development there is in this slow market, the majority of it is taking place close to the city of Cleveland and the center of the regional market, represented by the intersection of Interstates 77 and 480.

Bob Scannell of Indianapolis-based Scannell Properties is a developer new to Cleveland. He built the 7-acre, 85,000-square-foot Federal Express distribution center in Bedford Heights. Cleveland is an insular market where controlling land is paramount. It is difficult to find land, and developers will never sell land to each other, making it hard for a new developer to come into town.

While some major tenants are shedding space, such as Stanley Air Tools, which is leasing out 50,000 square feet on Avion Park in Highland Heights for a new office and manufacturing center, others are signing new leases. Pioneer Standard has signed for 100,000 square feet on Fountain Parkway and 110,000 square feet on Parkland Boulevard in Solon. Gallo Display has leased 215,000 square feet at the Cotton Club building on E. 49th Street and the Cleveland Clinic has leased 40,000 square feet at Independence Tech Center on Brecksville Road.

Rental rates for new industrial sites that include office space range from $4.50 to $9.50 per square foot and between $3.50 and $3.75 per square foot in a triple net lease for second-generation space. R&D/flex sites are seeing rates between $6 and $13.50 for triple net leases.

The submarket to watch is the one with the greatest vacancy, but historically the most activity: southeast Cleveland. Duke Realty Corporation and Geis Development both have a big presence there. Geis is the largest industrial developer in northeast Ohio with more than 1,000 acres in this submarket alone. “Look for them to come out of the recession with new developments,” Coyne says. Duke has been sitting on a 144,000-square-foot speculative building in Solon for nearly 12 months. This speculative building is part of a larger 200-acre development, which has only one other building, Best Buys’ 3-year-old, 320,000-square-foot distribution building. As market activity picks up, expect them to have more success leasing and developing this park.

Terry Coyne is Senior Vice President of the Cleveland Office of Grubb & Ellis.


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