YOUNGSTOWN, Ohio – Industrial properties are in high demand across the Mahoning Valley, as the manufacturing sector continues to grow despite gathering headwinds in the economy.
The critical impediment to the sector’s expansion in this region boils down to simple supply and demand, commercial real estate specialists say. There’s just not enough available industrial space to accommodate the needs of modern manufacturing interests.
“A 10,000- to 40,000-square-foot modern building is a unicorn right now,” says Dan Crouse, an agent for Platz Realty Group. “There are plenty of people to fill spaces. We don’t have the space.”
While there is an inventory of older industrial sites in need of extensive renovation, the trend among manufacturers or warehousing and distribution interests is to purchase or lease space that in the long run will reduce cost.
“They want insulated, well-lit buildings that bring lower utility costs,” Crouse says. “It’s difficult to get a nice building at the moment. It’s tough.”
Nevertheless, Crouse says that over the last year he’s negotiated several deals that have enabled companies to expand into larger industrial and light industrial spaces.
In February, for example, Crouse handled the sale of the former Carrier Services Group building at 2927 Mahoning Ave. in Warren. Color 3 Embroidery, which had outgrown its location on Chestnut Street, purchased the 40,000-square-foot building for $1.5 million and recently finished moving the last of its equipment to the site.
Cockeye BBQ occupies Color 3’s former building on Chestnut.
“That was really good for everybody,” Crouse says. “But, there are so few buildings like that.”
The Mahoning Valley is not alone, as the region’s industrial real estate market is in step with national trends. A report issued in April by the Los Angeles-based industrial real estate developer CBRE shows that tight availability drove industrial rents up 11.8% to an average record high of $8.94 per square foot during the first quarter of 2022 compared to the same period a year ago.
Industrial production inched upward during the first quarter too, fueling demand for warehouse space, the report shows.
Meanwhile, the availability rate stood at 4.9% and vacancy rates registered just 3.1% during the quarter, well below the 15-year vacancy rate average of 5.9%. At the same time, supply in industrial real estate increased, but not enough to satisfy overall market demand, according to CBRE.
“Despite a large amount of new supply in the pipeline, strong demand for first-and second-generation space is expected to keep availability historically low this year,” the report states.
Although supply chain and inflationary pressures have driven up costs for new construction in the industrial sector, completions during the first quarter increased by 27.5% year-over-year but decreased 27.8% compared to the previous quarter, the report shows.
Still, rising building costs, coupled with a spike in interest rates, could complicate the momentum that’s gained steam since the economic rebound in the wake of the pandemic.
“The cost to build now is significant,” says Don Thomas, managing partner for commercial real estate at Platz. “Those are the kind of things that can stall this.”
As an example, Thomas cites interest from an out-of-town client looking to build a food manufacturing operation in the Mahoning Valley. “They got a build price of almost $400 per square foot,” he says. “So, from a regional perspective, there’s demand, but not a lot of flex space.”
Indeed, out-of-town investors see this region as an opportunity to purchase quality industrial properties at a lower risk than other areas around the country, Thomas says.
“The cap [capitalization] rates are higher here than on the coast,” he says. Essentially, the higher the cap rate, the more likely it is for a better return on investment in commercial real estate. Investors are attracted by factors known to the Mahoning Valley, such as lower costs for insurance, property taxes and other expenses, he says.
As the economy has improved, cap rates have increased in this region to between 6% and 8%, whereas other parts of the country are experiencing a rate of return of between 2% and 4%, Thomas says. “Those pieces are all in play here.”
Recent transactions in the area validate investor interest in those industrial properties with strong leases and long-term tenants.
The 25-acre Sodexo | Roth campus and leasehold in Austintown sold June 17 to Charleston, South Carolina, investor KPMM LLC for $7.5 million. “This location stood out because of its location and strength of tenant,” Mark Richardson, KPMM managing partner, told the Business Journal June 27.
“It was a quality product with a quality tenant for an investment in the long term. I love strong companies with long operating histories and corporate headquarters,” Richardson said.
Other transactions over the last several months include the sale of an industrial building that houses Drake Manufacturing in Champion for $1.2 million to a Los Angeles investor, while a local entity, Bloom Land Co., acquired a 169,000-square-foot industrial building on Paige Avenue in Warren for $1.3 million, records show.
The most significant deal so far is the $230 million purchase of Lords-town Motors Corp.’s plant by Taiwanese manufacturer Foxconn.
“There’s a lot of good things happening in the Mahoning Valley,” Platz’s Thomas says. “Look at what’s happening in Lordstown, additive manufacturing and the nearby Shell cracker plant,” he remarks, referring to Royal Dutch Shell’s $6 billion ethane plant that is close to completion in Center Township, Pennsylvania.
“I think the industrial market is doing great,” says Lisa Resnick of Burgan Friedkin Commercial Group. “We just need more of it.”
Over the last several years, older industrial sites in the region have provided ample opportunity for buyers to redevelop and repurpose them into completely different venues, Resnick says.
“It’s challenged the traditional aspect of how we look at things in real estate,” she says, following trends first set in larger municipal markets.
The most prominent example locally is the Penguin City Brewing Co. taproom and brewery on East Federal Street in Youngstown, she says.
The project entailed the purchase and renovation of a vacant industrial building that once served as a steel distribution company.
The 33,000-square-foot building was overhauled with a $4 million investment and officially opened July 1. Across the street, the former Northeast Fabricators building is today owned by the Youngstown Flea, which sponsors arts and crafts fairs each month.
In other markets, industrial sites have been converted into open office spaces with a community atmosphere conducive for retail establishments, restaurants and entertainment venues.
With uncertainties in the global economy, however, many potential buyers are taking pause over where to locate, Resnick says. “At least in the commercial world, people are going to be more methodical, pragmatic and watchful with their numbers.”
Among the other industrial properties that Burgan Friedkin has listed is the Allstate Public Warehouse on North Avenue in Youngstown.
“There is a healthy amount of buyers and tenants out there looking for space,” Resnick says, noting inquiries originate from across the country because of online listings.
“There are great things happening in the Mahoning Valley,” Resnick says. “We’re very lucky to be a part of that growth, no matter what aspect.”
Pictured at top: The Sodexo | Roth campus in Austintown was sold for $7.5 million. It was the largest real estate transaction in the three-county region in the month of June.