Over the last few years, a dark cloud has been hanging over metro Toledo’s industrial-space market.
Companies interested in finding space in a particular area of town would find slim pickings. But that seems to be changing.
A midyear report on factory and warehouse space in metro Toledo shows demand has increased and seven projects are in construction for a total of 1.1 million square feet, or about the size of Franklin Park Mall, according to Reichle Klein Group, a Toledo commercial real estate company.
The amount of available space “continues to be a constraint,” said Harlan Reichle, managing partner of Reichle Klein and the author of the report. “But you are seeing build-to-suit expansions and build-to-suit projects that can handle the lag time that comes with new construction.”
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Dana manufacturing plant is under construction at the Overland Industrial Park, situated on the site of the old Jeep plant.
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Overall, the area’s market for industrial space is “very strong,” and the region appears poised for a “vigorous burst of growth” over the next two years, the report states.
Bob Mack, an agent with commercial real estate firm Signature Associates in Toledo, said there is steady demand for available space, but the area could use more inventory.
“Because there’s less supply, specific needs such as rail-siting or something as simple as 480-volt power,or door configurations can be problems,” he said. “When you have so many fewer buildings in the availability process it becomes much harder to find the right space to fit a specific need.”
The overall vacancy rate dropped to 5.8 percent over the past six months, even though Fiat Chrysler’s Toledo Assembly Complex shut down its Cherokee factory and some suppliers moved to Illinois. “We think that this action speaks to the underlying strength of demand for space and the relatively short supply of attractive alternatives,” the report states.
Mr. Reichle said some of the markets numbers belie the increased activity that is occurring. For example, the overall marketing leasing rate per square foot fell to $3.13 at the end of June compared to $3.25 at the end of December. That would suggest that demand for industrial space was slumping.
But the lease rate for Class A industrial space — which are updated buildings in good locations with transportation docks, utilities, and infrastructure — surged to $4.06 per square foot from $3.70 in December.
“In a tight market, the lion’s share of space is less desirable, in less desirable locations that can only command lower rates,” Mr. Reichle said.
A building on Fairfield Drive in Northwood is sitting partially empty with 88,000 square feet available.
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When the right space doesn’t exist, many businesses build. Allermuir U.S., a maker of commercial furniture, couldn’t find what it needed so in 2014 it built a 91,000-square-foot manufacturing and headquarters facility in Monclova Township. Then, it built an adjacent 37,500-square-foot warehouse this year.
Still, Class A spaces are available to show clients, said Mr. Mack of Signature Associates.
He has a listing for a newer bellwether building at 6519 Fairfield Dr. in Northwood that sits partially empty with 88,000 square feet available. “That’s a building that’s Class A industrial with truck docks and a nice ceiling. They’re asking $3.50 per square foot, and that has kind of been the price for quite some time,” he said.
And leasing rates raise another key issue for the area.
The rate for existing space in metro Toledo is just $3.13 and it hasn’t been much higher the last six years. It was $3.04 per square foot in 2011 and peaked at $3.25 at the end of last year. By contrast, the industrial lease rate in Columbus is $5.31, according to LoopNet, a commercial real estate listing network.
While Toledo’s rate is a bargain for industrial space renters, those rates make it hard for developers to build industrial space without having a waiting tenant, given rising construction costs. Developers who erect buildings on that speculative basis may need $4 to $5 a square foot to recoup costs.
“Construction costs are out of whack with what you could lease a building for. We’re seeing lease rates go up and I think they just need to go up further to trigger developers to put up buildings,” said Gary Micsko, an industrial specialist at Reichle Klein. But, he added, some spec building is under construction now.
Developer Ed Harmon, of NAI Harmon Group of Toledo, has been the most visible industrial spec builder.
In 2015, he constructed a 100,000-square-foot industrial spec building on the site of the former Jeep plant off Jeep Parkway in Toledo in what is now called the Overland Industrial Park.
But the building sat empty for a year before Dana Inc. took it last year and asked that it be doubled to accommodate even more work. Afterwards, another manufacturer, Detroit Manufacturing Systems LLC, said it would move to the park and it is building a 100,000-square-foot factory.
Fiat Chrysler chose a Detroit-area auto parts company, which chose a closed Michelin tire warehouse in Bedford Township when it couldn’t find a suitable building.
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Stephanie Kuhlman, senior development agent for NAI Harmon Group, said her firm was “certainly lucky” that Dana came along. But if the area’s industrial market is ever going to take off, there has to be developers willing to take those kinds of chances, she explained.
“We are entertaining putting up a new spec building up in our new Harmon business park in Rossford,” she said. “You need something out there to show people, and it’s almost like you have to bite the bullet to put up something first,” she added.
North Toledo has some older, available industry space, and some of those are being snapped up, Ms. Kuhlman said. “Once those are gone we’re really not going to have much choice but to build,” she said.
One developer taking the risk is Mark Styacich, owner of Brookwood Landscape & Nursery in Holland. In the last 10 years, he has constructed seven small industrial buildings, each about 10,000 square feet, in Lucas County.
Mr. Styacich is in the finishing stages of building two new spec buildings of 12,000 square feet on Sager Road off of Airport Highway near Eber Road in Swanton Township. They are in the Westwinds Business Park, just south of Toledo Express Airport.
Megan Malczewski of Signature Associates is marketing the spec buildings for Mr. Styacich and said interest is strong, suggesting that industrial users aren’t looking just for the 100,000-square-foot warehouse properties.
“They are in the final stages of completion but, goodness, we already have a lot of activity,” Ms. Malczewski said.
Mr. Micsko said that, while many think of large factories when imagining industrial properties, it is the 10,000 to 30,000-square-foot properties that draw the most interest.
Still, big space is needed as well. Recently a Detroit area auto parts company, Syncreon, was chosen by Fiat Chrysler Automobiles to supply its Toledo Jeep complex but couldn’t find a 300,000-square foot industrial site in Toledo that could be made ready in six months to employ 270 workers. So it chose a closed Michelin tire warehouse in Bedford Township.
In the future, if another large employer wants to come here, it may have more options. The Regional Growth Partnership is working with JobsOhio and a local private investment group to build a 100,000-square-foot spec building near Toledo Express Airport. JobsOhio and the growth partnership would help provide infrastructure while the investors would buy the land and construct the building, possibly starting by September.
The idea, said growth partnership President Dean Monske, is to get one building constructed, which could lead to others, as was the case with the Overland Industrial Park. The land by the airport has room for 1 million square feet.
“Dana came along and then they brought [Detroit Manufacturing Systems] to Toledo and both of those projects came out of a spec building by Ed Harmon,” Mr. Monske said. “We’ve had the successes now. It truly is build it and they will come situation,” he added.
Contact Jon Chavez at email@example.com or 419-724-6128.