3rd Quarter Market Update

The research department at Grubb and Ellis just released the third quarter market report for both the office and industrial sectors for the Greater Cleveland area. And while the numbers are not the most optimistic piece of news you will read, looking a little deeper shows some interesting trends.

First, the industrial market took a hit this quarter because the Chrysler Stamping plant in Twinsburg is now included in the statistics for the region. Prior to this quarter, our research department did not included the stamping plant in our numbers. With Chrysler's departure, the market vacancy rate for the entire market increased nearly 70 basis points and the vacancy rate for the the particular submarket where the property is located increased nearly 200 basis points. The re-use of this property is still uncertain and it is possible that the building could be partially, or completely torn down and redeveloped as a well located industrial park.

Digging deeper into the numbers you see the story of two markets. Our region is known as a heavy manufacturing region and our buildings reflect this heritage. We have an approximate 300,000,000 square foot market, which is dominated by old, lower ceiling, somewhat functionally obsolete buildings. The vacancy rate for such buildings approaches 20 percent. However, the newer, modern, distribution buildings with features such as 24 foot ceiling heights or higher, modern sprinkler and lighting systems, and current dock packages, are experiencing vacancy rates sub 8% with increasing rents. The vacancy rates for such properties is among the lowest in the country and fetches higher rents than similar product in cities such as Chicago and Atlanta.

On the office side, the interesting trend not clearly shown by the numbers is the offer of free parking included in downtown office rents. The first landlord to offer this amenity, the Maron family at 629 Euclid, now known as the Rosetta Center, have been met with strong early success. The Marons own their own parking facility, so they have a unique situation, but I think you will see an alliance between downtown building owners and parking lot operators offering one price with dedicated parking. This option makes it easier for a tenant to compare its options between downtown and suburban choices. Typically the cost of parking adds $3 to $4 per square foot in rent and makes the comparison between the two markets difficult for a tenant. Consolidating the two costs and presenting it as one package to a tenant will likely happen more as the vacancies in downtown increase.