Toledo's apartment and industrial real estate markets were red hot last year but not its retail and office space sectors, which recorded higher vacancy rates and fewer transactions.
That's according to new annual reports from the Reichle Klein Group, a Toledo real estate company that frequently analyzes the area market. In general, the reports suggest the Toledo area's commercial real estate scene is on solid footing as the region emerges from the pandemic.
Apartment rents are soaring and vacancy rates are low as numerous buildings trade hands
The average rent in the Toledo area at the end of the year stood at $898 — up 12 percent from the start of 2021, and 22 percent above two years ago. Meanwhile, vacancy was cut in half over the past two years, the report said, plummeting to 2.7 percent.
It's added up to plenty of investor interest, including many from outside the state; thirty buildings traded hands last year.
"Apartments in particular have been a real safe place to invest," said Harlan Reichle, president and chief executive of Reichle Klein, who noted this outside-investor trend has been underway since the Great Recession. "With housing prices going up, the rent supports that were offered as part of the pandemic financial packages, [it] just made investing in apartments that much more attractive."
Still, new apartment construction is slow, the report said, at its lowest level since 2018. Among the few major projects finished in 2021 was the SOMO Flats in Sylvania. This means, despite a handful of other projects in the works, that there is no risk of apartment oversupply anytime soon, Mr. Reichle said.
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About 820,000 square feet of industrial space was filled in the second half of 2021, and overflowing demand exists for space that simply doesn't exist, experts said.
For top-of-the-line "Class A" buildings, vacancy is essentially zero. This means "drastically increasing rents and long wait times for new space to be delivered," the report noted.
The most demand is for buildings in the 80,000 to 200,000-square-foot range, said Craig Stambaugh, president of NAI Harmon Group, the Toledo-based development and commercial real estate outfit. Companies are willing to pay higher construction costs, he said, and there has been a flurry of activity in recent weeks as firms hope to start projects before interest rates rise.
Most of the new demand for industrial space is no longer coming from automotive companies, the report noted, continuing a Toledo trend that emerged a decade ago.
Logistics is now the big driver of the industrial real estate market in northwest Ohio, said Sam Zyndorf, managing partner of the commercial real estate firm Signature Associates in Toledo. Companies ranging from grocery store chains to home improvement need more space for their logistics operations these days, he said.
But manufacturing still played a big role in last year's growth: Among the biggest industrial projects announced were First Solar's new $680 million factory, and Peloton's 1 million-square-foot facility. Amid financial struggles, Peloton announced this week it no longer plans to use the facility, but will finish out the exterior and sell it.
Experts said given the huge demand for industrial space, they have no doubt it will sell quickly. However, Mr. Stambaugh said it may need to be split up among several companies given its massive size.
Lots of office space is sitting vacant amid the pandemic, and more will be soon
Office leasing activity was inching back up a bit in the second half of 2021 until the omicron variant arrived, the Reichle Klein report said. Vacancy in the Toledo area remains relatively high at 17 percent — and more vacancy is expected soon.
Roughly 300,000 square feet of additional office space in the Toledo area is set to hit the market in 2022, the report stated. That includes a couple big changes from companies located at Maumee's Arrowhead Park, Mr. Reichle said, including a move by ProMedica to shift its Paramount insurance operations to downtown Toledo.
"Both landlords and tenants are struggling with costs," the report said. "In the face of the oversupply of space, any landlord that might be inclined to offer lower rent to attract tenants is constrained by rapidly rising operating expenses, particularly utilities and janitorial expenses."
Mr. Stambaugh said it's just a tough market right now, with many companies rethinking work-from-home policies and reducing their overall office square footage.
"I think it will come back," he said, "but I don't think it will come back to a pre-pandemic level."
Only two significant new offices are under construction, both in Perrysburg's Levis Commons.
There has been a surprising bright spot with small Toledo office buildings, which have generally stayed occupied and continued to sell at a brisk clip last year, Mr. Reichle said. Small businesses and big corporations often took contrasting approaches to in-person work during the pandemic, he noted.
A lot of small companies "probably been in the office the entire time," Mr. Reichle said, "and they don't intend to leave it."
Retail square footage continues to shrink as shopping centers rethink their identities
The retail real estate sector notched a "surprisingly strong" performance in 2021, as vacancy decreased to 10.5 percent, 207,000 square feet was leased, asking lease rates increased, and a few new strip malls were under development in the suburbs.
Still, the report noted, it helps that the amount of overall retail space is plummeting: "A factor in the market’s improving metrics is the ongoing repurposing or redevelopment of marginal centers/locations or physical obsolescent spaces in strong locations. As a result, the total square footage devoted to 'retail' continues to shrink."
Mr. Zyndorf said retail is the weakest of the four real estate sectors. But it is still an active space in the Toledo area, and is constantly evolving — generally away from traditional stores that sell clothing or other goods, and toward food and services such as gyms.
Almost nobody is building new retail buildings, he said, unless it's a restaurant, like the new Cooper's Hawk Winery & Restaurant on Talmadge Road. And even the new French Quarter Square development in Perrysburg will, Mr. Zyndorf noted, will be filled with restaurants and services — such as a chiropractic business and company that offers swim lessons.
First Published February 12, 2022, 4:00 p.m.
