YOUNGSTOWN, Ohio – Demand remains strong for multifamily housing units as the commercial market continues to navigate through uncertainty, real estate brokers report.
The commercial market remains “extremely active,” with “a fair amount” of new listings coming to market, Don Thomas, managing partner at Platz Realty Group, Canfield, says. Deal flow is up slightly from a year ago, but the complexity of deals has increased, whether because of government oversight, banking oversight or appraisals.
“The deals are out there, but the process to get deals done has just gotten … a lot more cumbersome than it has been,” he says. The commercial sector remains a seller’s market.
Lack of inventory is an issue Jim Grantz, broker associate with Edward J. Lewis Inc. in Youngstown, is facing, especially in the rural sections of Mahoning County.
“The deal flow of the inventory we have has been good,” he says. “We’re seeing industrial deals get done, office deals get done and retail deals get to the finish line.” In addition, lease rates are about 5% higher in the office segment, and up 10% in retail, than they were two years ago.
People are starting to invest because they see less uncertainty in the economy, according to Alan Friedkin, associate broker with Burgan-Friedkin Commercial Group in Liberty Township.
“People are starting to feel a little bit more comfortable with what we have and kind of accepting what’s going on right now,” Friedkin says. “There’s a little bit more certainty of what’s going on.”
Not everyone feels that way. Tom Niemi, agent and broker with Landmark Real Estate Services in Austintown, reports people in the market he has spoken with have indicated uncertainty, whether related to the tariff situation or other factors.
“I would say it’s just kind of level,” he says of the commercial market. “I wouldn’t call it a hot market. I would call it just kind of average so far,” he says.
“The overall commercial market has been soft for a long time,” Vince Hillard of Berkshire Hathaway HomeServices, The Preferred Realty says.
Hillard, who markets commercial real estate in eastern Ohio and western Pennsylvania, says he has seen a lot of listings popping up in Mahoning County. A recent conversation with a CoStar representative confirmed that listings are up 35%.
“They’re just miscellaneous buildings that used to be general use commercial space,” he says. Many businesses are having problems because of the shift to online retailing. He points to the experience of the store he owns with his wife, Leana’s Books and More, which last September experienced one of the biggest drops in business since they started, and since then sales haven’t been what they should be.
“We’ve always been kind of steady, but I think we’re going to see a lot more growth in these next years because of the upcoming development with these bigger projects coming into our market,” Friedkin says.
He also reports he has been doing more commercial leases in area plazas, everything from bake shops and nail salons to fast food franchises. Since working on the deals for the two new hospitals on Belmont Avenue in Liberty Township, there has been increased interest by national chains, including ones not already in the market. In particular, he is in discussions with a couple of national franchises that are interested in a one-acre parcel at the front of Liberty Plaza.
“We have a couple newer ones that are looking into the area right now, and then we have some of the existing franchises that are looking to expand,” he says.
In addition, he is engaged in talks related to the potential sales of some ongoing businesses. “Some of the people are retiring or looking to an exit strategy,” he says.
Interest in Multifamily
Platz’s Thomas says multifamily housing structures continue to be in demand.
“There’s not a lot out there, and the stuff that’s out there is being sold at, I’ll call it, record prices,” he says.
Friedkin reports he has several investors looking to purchase multiunit apartment buildings.
“We have a lot of apartments that have been on the market, and we get a lot of out-of-town investors looking to come in and purchase because our area is at a price point that is different than other parts of the country,” he says. “These are kind of bargain prices, so people are coming in and trying to scoop up as many of these as they can.”
Multifamily commercial “is always a big mover, and you can tell that there’s very little available out there right now,” Mark Renzenbrink, residential and commercial agent for Century 21 Lakeside Realty in Austintown, says. “There’s just not much, if any, to choose from.”
Industrial Sector
Lewis’ Grantz recently closed on a parcel in Boardman for distribution and office space for a medical supply company and a couple of other lots are in due diligence for distribution projects. “I’m actually seeing an uptick in demand for good industrial land,” he says.
Activity in the industrial arena represents a combination of demand by the manufacturing and distribution sectors, Grantz says.
“There’s going to be a lot more activity because of the new plants that are going up,” Friedkin says. “We have some stuff within downtown Warren that we’re hoping to get developed (because of] the projects that we have going on down there, with Kimberly-Clark coming in.”
Thomas says the industrial development in Lordstown is benefiting North Jackson in neighboring Mahoning County.
Columbiana County is also in the focus of developers. “There are good opportunities for growth in Columbiana though not a lot of availability,” he says.
Grantz has been contacted by “multiple organizations” that develop data centers about a couple of properties – one in the Mahoning Valley and the other off Interstate 90.
“They’re so highly specialized that the inquiries are for raw land with access to heavy power,” he says. Discussions also are taking place with potential power suppliers to determine whether their project would be viable at the locations being investigated.
Though Hillard doesn’t do much in the industrial sector, he reports that the industrial side of the market has been very busy for one of his colleagues.
Landmark’s Niemi, who primarily focuses on industrial properties, says he is having difficulty accommodating requests for buildings in the 2,000- to 5,000-square-foot range. That kind of space is begin sought mostly by small business owners who are looking to take their businesses out of their garages.
“I get inquiries for that kind of space a lot – I would say three or four a month,” he remarks. “That kind of space is just not available in our market.” All the flex spaces, which have units that could be combined to accommodate the needs of prospective tenants, are full, and owners that used to lease flex spaces at $4 per square foot are asking $6 per square foot.
Thomas points to a shortage in flex unit, warehouse and manufacturing space.
“We would encourage some developers to take a look at that area of the market, and potentially invest in that area,” he says.
Niemi also handles several larger, older industrial buildings with cranes that range from 100,000 to 200,000 square feet. One is the former Youngtown Steel Door building on Hendricks Road in Austintown.
“I had somebody in there this week looking for 40,000 square feet, and the facility is 300,000 square feet,” he says. “It would be a start to get some activity in there.”
Office Space
The agents shared mixed views on the office market.
“Over on the Pennsylvania side, I can tell you that we’re light on office space, which is kind of surprising. Everybody thought office space was going away,” Hillard says. Much of that activity is in the “peripheral towns,” like Greenville and Mercer, although supply is also tight in Hermitage.
Platz’s Thomas also says office space is in demand. There is little available in suburban communities, where demand is greater.
“There’s always people moving for different reasons,” Grantz says. Office relocations typically are driven by a need for more space while retailers normally are moving from locations that were “a little bit hidden” to places that are more “front and center.”
Century 21 Lakeside’s Renzenbrink reports the office segment is the slowest moving one he sees, with a “glut” of available space.
“We’re looking at almost a 25% vacancy rate in office space,” he says. “There’s definitely opportunity for people who are looking for office space to be able to negotiate a better than usual lease, or even a purchase. There is that opportunity to get a good deal”
Interest Rates
Several of the agents and brokers weighed in on the recent decision by the Federal Reserve to reduce the federal funds rate by a quarter percentage point.
“We would benefit mightily from an interest rate reduction, just something that signals to the market that there’s some stability in that area,” Thomas says.
Grantz calls it “a step in the right direction.” Reduced borrowing costs benefit everyone in the commercial real estate market and will lead to an increase in market activity, he predicts.
Interest rates “have been a problem” and building costs are higher than they had been in previous years, and that has been part of the problem with encouraging new construction, according to Friedkin. Both factors combined to put a plaza project planned for Western Reserve Road on hold, but it is now being reconsidered.
“As the rates come down more substantially, I believe that we will see more construction and business opportunities for expansion,” Friedkin says.
The rate cut should lower borrowing costs, potentially stimulating activity in the commercial real estate market, Renzenbrink says.
“The overall impact may be tempered by ongoing economic challenges and the need for further rate adjustments,” he says. “In the short term, the impact will be limited but should improve if additional rate cuts go into effect.”
The recent rate cut, and any future ones, could play out in several ways.
“With loan costs decreasing, the value of commercial property should increase as more investors acquire available property,” Renzenbrink says. “As always, inventory will play a significant role in value.”
Hillard questions whether the current rate cut would “move the needle much” in the commercial market. “But future cuts will,” he predicts.