“The Cincinnati industrial market emerged from the Great Recession with a vacancy rate in excess of 10%. Since then, robust leasing activity and a cautious approach to speculative construction have driven the overall vacancy rate down to a record-low 3.5%. Construction activity has ramped up over the past few years but demand continues to outpace supply, triggering double-digit year-over-year increases in asking rents for Class A logistics space. Amazon’s recent agreement to invest $1.5 billion at the Cincinnati/Northern Kentucky International Airport to create an Amazon Prime Air hub is a testament to the region’s transportation infrastructure, skilled labor force and business-friendly climate.” — Shenan P. Murphy, CCIM – CEO & Principal | Cincinnati & Dayton
The state of Ohio is becoming an e-commerce destination because of its central location, large workforce and excellent transportation advantages. In particular, Cincinnati is a market that is especially suited to meet the growing demand for faster delivery and accompanying needs for warehousing and transportation. More than 35 million people live within 250 miles of Cincinnati, nearly 15% of whom are millennials. Cincinnati’s central location and demand from e-commerce companies have dropped industrial vacancies to all-time lows, increased new development and made Cincinnati one of the top industrial growth markets in the country in Q1 2017.
The Amazon Prime Air hub at the Cincinnati/Northern Kentucky International Airport (CVG) will be a major boon to an already strong e-commerce market. When fully functional, the hub will employ 2,000 full-time employees as Amazon looks to expand its Prime Air capabilities.
According to Johnna Reeder, president and CEO of REDI Cincinnati, “The entire region will benefit from Amazon coming to CVG. This move will open up opportunities for Greater Cincinnati to be a strong competitor in the Internet of Things marketplace. It’s a great example of how much can get done when different organizations — from the airport to local economic developers — roll up their sleeves and work together.”
After peaking at more than 10% in 2009, the Cincinnati industrial market has enjoyed steady year-over-year drops in overall vacancy. Today, vacancy stands at under 4% as new developments are being gobbled up by large users and small industrial space availabilities are at all-time lows.
The top transactions in Q1 2017 were all in the e-commerce sector and involved recently completed modern bulk distribution centers:
- Hayneedle occupied 994,000 square feet at Park North at Monroe.
- Kroger acquired a 674,500-square-foot distribution facility in Independence that they will use for online grocery fulfillment.
- Amazon expanded to a 647,000-square-foot building in Hebron.
- UPS leased 442,000 square feet near the airport.
These deals, as well as a plethora of move-ins, sent occupancy soaring in the Cincinnati industrial market during the first three months of 2017. More than 3 million square feet of industrial space were absorbed during the first quarter — an all-time record for the market and enough to rank Cincinnati seventh in the nation for total net absorption and third for absorption as a percent of inventory at the end of Q1 2017.
Construction activity is strong and increasing in volume. Following 2.2 million square feet of speculative projects completed in 2015, another 2.9 million square feet were completed in 2016. In 2017, an anticipated 4 million square feet of speculative warehouse space will be added, which will be the highest amount of new development in more than a decade.
New Class A product, in conjunction with tightening availabilities, has resulted in a 6.1% year-over-year increase in the bulk warehouse asking rental rate to $3.72 per square foot. The shrinking supply of available mid-sized freestanding industrial buildings has exerted pressure on asking rates for this property type, which has recorded a year-over-year gain of 24.4% to $4.37 per square foot.
Overall, industrial asking rental rates in Cincinnati finished Q1 2017 at $4.26 per square foot, significantly lower than the U.S. average of $5.87 per square foot.
|Inventory||Overall Vacancy Rate||Overall Net Absorption||New Supply (Construction)||Under Construction||Asking Rental Rate (psf/yr)|
|Overall Vacancy Rate Q1 2016||Overall Vacancy Rate Q1 2017||Asking Rental Rate Q1 2016||Asking Rental Rate Q1 2017|
500,000 SF +
Source: Colliers International
For more insights, learn about the top 10 U.S. industrial emerging markets positioned to experience the most robust increases in demand from occupiers and owners. And stay tuned for more Industrial Market Spotlights!
Also: Read the U.S. Industrial Market Spotlight: Puget Sound
James Breeze is National Director of Industrial Research for Colliers International in the United States. Based in the Greater Los Angeles area, he prepares quarterly and specialized industrial research reports and interprets trends and data across the country.