JLL Research

Cleveland | Q1 2017

Industrial Outlook

An in-depth look at the Cleveland industrial market. Analysis includes leasing, sales, construction and employment.

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Q1 2017

Insight

Cleveland Industrial Outlook

Local industrial trends remained constant through the first quarter with vacancy holding around 9.0 percent, asking rents increases approximately 2.0 percent year-over-year, and close to 1.0 million square feet of product under construction. Modern bulk availability remains quite limited, forcing many users to look at build-to-suit or owner-occupier arrangements. Speculative projects recently completed or currently under construction are seeing very high levels of preleasing. Prime examples include the Cornerstone Business Park in Twinsburg that Scannell is developing along with the Seasons Business Center in Stow that Fogg and Brennan are developing.

Demand for industrial space remains high and is growing. Large companies like Stemco and ABB are constructing technologically advanced research and development facilities. Others, such as Cornwell Quality Tools, Lubrizol, and Hillcrest Food Service, are expanding their warehouse and distribution operations. But many companies find the cost of construction prohibitive and are biding their time as they search for affordable facilities.

Average lease rates are steadily rising due to the shortage of supply and increased market-wide demand. While reasonable tenant improvement allowances and free rent are available, the gap between asking and taking rents is shrinking. As occupancy rates increase, net effective rents will approach premium levels.

OutlookThese supply, demand, and pricing trends will continue through 2017. There is a real need for additional supply throughout the market. Current availability of modern bulk will continue to dwindle, increasing relevant demand and prices. Additional developers entering the market would be a welcome sign. An increase in the number of speculative developments would help uncap business expansion plans and create greater competition in the marketplace.

Fundamentals Forecast

YTD net absorption -396,818 s.f. ▲QTD net absorption -396,818 s.f. ▲Under construction 998,000 s.f. ▶Total vacancy 9.0% ▼Average asking rent (NNN) $3.87 p.s.f. ▲Tenant improvements Falling ▼

-1,000,000

1,000,000

3,000,000

5,000,000

2013 2014 2015 2016 YTD

2017

Supply and demand (s.f.) Net absorptionDeliveries

Spec projects continue to see success, will additional developers enter the market and create competition?

9.8%

9.1% 9.0% 8.9% 9.0%

8.5%

9.0%

9.5%

10.0%

2013 2014 2015 2016 YTD

2017

Total vacancy

• Availability of Class A warehouse space is decreasing throughout the region. Developers are providing new facilities, but they are not delivering at the pace or quantity needed.

• Demand for both existing and new facilities is strong and continues to grow steadily across all markets and sectors.

• Lease rates continue to rise due to high demand and low availability. Expect this trend to persist until there is considerable development.

$2.25

$3.25

$4.25

2013 2014 2015 2016 2017

Average asking rents ($/s.f.)

W&D Manufacturing

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Q1 2017

Statistics

Cleveland Industrial Outlook

Inventory

(s.f.)

YTD

total net

absorption

(s.f.)

YTD

total net

absorption

(% of stock)

Total

availability

(s.f.)

Total

availability

(%)

Average

asking rent

($ p.s.f.)

YTD

completions

(s.f.)

Under

construction

(s.f.)

Cleveland Totals Warehouse & Distribution 181,232,334 -135,062 -0.1% 16,583,304 9.2% $3.95 114,000 651,000 Manufacturing 154,935,711 -261,756 -0.2% 13,646,662 8.8% $3.72 0 347,000 Totals 336,168,045 -396,818 -0.1% 30,229,966 9.0% $3.87 114,000 998,000 Flex 22,444,812 -52,526 -0.2% 3,031,982 13.5% $10.05 20,000 0Downtown Warehouse & Distribution 16,853,566 -106,610 -0.6% 2,506,538 14.9% $2.92 0 0 Manufacturing 19,095,368 249,751 1.3% 3,088,134 16.2% $3.76 0 0 Totals 35,948,934 143,141 0.4% 5,594,672 15.6% $3.38 0 0 Flex 1,538,927 -20,286 -1.3% 326,005 21.2% $14.00 0 0East Warehouse & Distribution 1,966,066 4,506 0.2% 96,705 4.9% $6.72 0 0 Manufacturing 1,958,750 136 0.0% 54,932 2.8% $4.50 0 0 Totals 3,924,816 4,642 0.1% 151,637 3.9% $5.92 0 0 Flex 1,890,663 7,122 0.4% 263,082 13.9% $10.86 0 0Medina County Warehouse & Distribution 10,715,124 32,001 0.3% 894,818 8.4% $4.30 0 257,000 Manufacturing 6,150,452 18,752 0.3% 504,691 8.2% $4.89 0 0 Totals 16,865,576 50,753 0.3% 1,399,509 8.3% $4.51 0 257,000 Flex 1,220,781 7,057 0.6% 159,205 13.0% $7.91 0 0Northeast Warehouse & Distribution 21,494,600 -55,004 -0.3% 1,935,074 9.0% $3.20 0 0 Manufacturing 31,719,630 -140,138 -0.4% 2,374,483 7.5% $3.59 0 0 Totals 53,214,230 -195,142 -0.4% 4,309,557 8.1% $3.41 0 0 Flex 2,006,641 -25,344 -1.3% 319,602 15.9% $12.97 0 0South Warehouse & Distribution 11,979,660 38,079 0.3% 1,153,737 9.6% $5.81 0 0 Manufacturing 10,307,906 98,784 1.0% 495,290 4.8% $4.09 0 0 Totals 22,287,566 136,863 0.6% 1,649,027 7.4% $5.29 0 0 Flex 3,377,624 44,832 1.3% 471,517 14.0% $9.23 0 0Southeast Warehouse & Distribution 43,531,755 -389,949 -0.9% 3,929,955 9.0% $4.37 0 394,000 Manufacturing 20,624,625 -13,888 -0.1% 1,313,983 6.4% $4.07 0 0 Totals 64,156,380 -403,837 -0.6% 5,243,938 8.2% $4.29 0 394,000 Flex 5,964,124 -44,257 -0.7% 852,107 14.3% $9.50 0 0Southwest Warehouse & Distribution 20,016,416 -163,637 -0.8% 1,780,139 8.9% $3.69 0 0 Manufacturing 17,316,495 -143,979 -0.8% 952,788 5.5% $3.81 0 0 Totals 37,332,911 -307,616 -0.8% 2,732,927 7.3% $3.73 0 0 Flex 2,907,441 23,371 0.8% 181,781 6.3% $9.69 0 0Summit County Warehouse & Distribution 35,510,955 224,515 0.6% 2,256,725 6.4% $4.38 114,000 0 Manufacturing 24,503,813 -78,032 -0.3% 3,493,604 14.3% $3.54 0 0 Totals 60,014,768 146,483 0.2% 5,750,329 9.6% $3.87 114,000 0 Flex 2,698,980 -14,109 -0.5% 360,641 13.4% $10.17 20,000 0West Warehouse & Distribution 19,177,131 273,140 1.4% 2,051,181 10.7% $3.92 0 0 Manufacturing 23,887,903 -253,142 -1.1% 1,336,657 5.6% $3.03 0 347,000 Totals 43,065,034 19,998 0.0% 3,387,838 7.9% $3.57 0 347,000 Flex 1,075,446 -9,712 -0.9% 90,327 8.4% $9.31 0 0

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Q1 2017

Construction

Cleveland Industrial Outlook

Address: 125 Hudson CrossingBuilding size: 125,000 s.f. Tenant: Confidential (125,000 s.f.)Owner: Premier DevelopmentBuild type: Spec. warehouse

Est. completion: Q2 2017

Address: 38889 Center Ridge Building size: 347,000 s.f.Tenant: Riddell (347,000 s.f.)Owner: Scannell Build type: BTS manufacturing

Est. completion: Q2 2017

Address: 14720 Foltz IndustrialBuilding size: 186,000 s.f.Tenants: XL Screw (47,000 s.f.)

JLL client (116,000 s.f.)Owner: ScannellBuild type: Spec. warehouse

Completed: Q4 2016

Address: 542 Seasons RoadBuilding size: 114,000 s.f.Tenants: Wheel Pros (35,000 s.f.)

JLL client (75,000 s.f.)Owner: JV- Brennan, FoggBuild type: Spec. warehouse

Est. completion: Q2 2017

Completed: Q1 2017

Address: 2000 Aurora Road Building Size: 248,000 s.f.Tenant: Amazon (248,000 s.f.)Owner: ScannellBuild type: BTS warehouse

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Q1 2017

Sales

Cleveland Industrial Outlook

This report analyzes all industrial sales completed in the last 12 months ≥ 30,000 s.f.

Top 10 sales transactions during the last 12 months

Size (s.f.) $ p.s.f. Sale date

333,215 $182 Jan-17

86,850 $115 Aug-16

100,040 $65 Feb-17

170,550 $62 Apr-16

222,900 $57 Jun-16

56,710 $57 Jul-16

381,528 $51 Apr-16

61,700 $51 Apr-16

100,000 $50 Sep-16

166,945 $49 Apr-16

13000 Darice Parkway AIC Ventures Pat Catan's $19,500,000

687 Seville Road STNL Property Corporation Prohrer Corporation $8,123,640

7925 Empire Parkway WP Carey REIT Forterra Building Products $33,130,624

22720 Steltfast Parkway Protech US Holding PrimeSource Building Products $5,000,000

261 Southwest Avenue AIC Ventures The Schipper Group $12,800,000

12665 Corporate Drive Cavaliers Operating Company Timothy Gotz $3,250,000

7201 Industrial Park Boulevard PMI Operating Company Performance Motorsports Int'l $6,454,000

12850 Darice Parkway AIC Ventures Pat Catan's $10,611,496

1425 Rockwell Avenue H5 Capital BYTEGRID Holdings $60,675,000

1000 Seville Road Capstone Limited James Doyle $9,950,000

Building address Buyer company Seller company Sales price

Average price per square footSales volume (s.f.)

$33

Average manufacturing price ($

p.s.f.) $22

Transactions details

Average flex price ($ p.s.f.) $79

12 months at a glance Sales activity by building type

Total volume ($) $238,935,365

Total volume (s.f.) 6,456,712 s.f.

Number of transactions 50

Average warehouse price ($ p.s.f.)

$22

$43

$63

$3

$32 $33$41

$23

$35

$0 $0

$20

$48

$8$0

$16

$30

$10

$182

$0 $0 $0 $0

$43

$0$11

$0$0

$25

$50

$75

$100

$125

$150

$175

$200

Downtown East Medina Northeast South Southeast Southwest Summit West

Warehouse/Distribution Manufacturing Flex

0 800,000 1,600,000

West

Summit

Southwest

Southeast

South

Northeast

Medina

East

Downtown

Warehouse/Distribution Manufacturing Flex

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

Warehouse / Distribution Manufacturing Flex

Sum of Price ($) Sum of RBA (SF)Sum of price ($) Sum of RBA (s.f.)

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

20%

18%

14%13%

12%

9%

6%

Educational & Health Services

Trade, Transportation & Utilities

Professional & Business Services

Government

Manufacturing

Leisure & Hospitality

Financial Activities

Other Services

Mining, Logging & Construction

Information

Q1 2017

Employment

Cleveland Industrial Outlook

4.7%U.S. unemployment

1.7%U.S. 12-month job growth

6.6%Cleveland unemployment

.4%Cleveland 12-month job growth

5.0%Ohio unemployment

0.6%Ohio 12-month job growth

0.0%

0.7%

1.4%

2.1%

2.8%

2013 2014 2015 2016 2017

Cleveland U.S.

-4,900

-600

-300

200

700

700

800

2,200

3,700

8,400

-10,000-8,000-6,000-4,000-2,000 0 2,000 4,000 6,000 8,000 10,000

Manufacturing

Professional & Business Services

Information

Mining, Logging & Construction

Trade, Transportation & Utilities

Other Services

Financial Activities

Government

Leisure & Hospitality

Educational & Health Services

-5.0

0.0

5.0

10.0

2013 2014 2015 2016 2017

Professional & Business Services Information

Government Financial Activities

0%

4%

8%

12%

900,000

1,000,000

1,100,000

2013 2014 2015 2016 2017

Employment Unemployment

Employment vs. unemployment rate

Employment by industry Office employment trends (12-month change, 000s)

Job growth by sector (12-month change)

Job growth (12-month change)

Job growth by sector (12-month change)

© 2017 Jones Lang LaSalle IP, Inc.

All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Andrew BatsonVice President, Director of Research+1 216 937 4374andrew.batson@am.jll.com

Noah BillResearch Analyst+1 216 937 4381noah.bill@am.jll.com

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. AFortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.

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