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Cincinnati Industrial Report | Q3/2022

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Activity Remains Steady as New Construction Approaches Completion

The Greater Cincinnati industrial market continues to remain quite active as we enter Q4. Though last quarter’s growth wasn’t as staggering as what we saw in 2021, activity shows no intention of letting up during the fourth quarter. The overall market vacancy rate fell by an additional 50 basis points to end the third quarter at 1.7%. The overall net absorption rose to 2.5 million SF. Furthermore, the market average asking rate reached a new high of $5.24 per square foot. Current demand appears to have slowed slightly, and developers are finalizing a highly needed wave of supply coming available in the first half of 2023. The third quarter ended with 12.8 million SF of space currently under construction. Additionally, new deliveries resulted in 950,000 SF of supply hitting the market, most of which was absorbed upon completion. Third quarter results have never been better historically, but we anticipate that to flatten for the balance of the year. The decreased activity along with the 3.2 million SF of construction completions will make it challenging to surpass the final surge we saw in the record setting 2021.

While Cincinnati remains relatively diversified in terms of industrial users, a healthy share of activity continues to be attributed to bulk warehouse demand. Bulk quarterly net absorption gained 1.4 million SF, pushing YTD bulk net absorption up to 6.5 million SF. The Tri County/West Chester submarket recorded the highest quarterly net absorption amongst all submarkets in the Greater Cincinnati area. None of the three major markets exceeded one million square feet as we saw in the first two quarters, but that can be attributed to the limited supply of available space. The Tri County/West Chester submarket drove absorption by taking more than 800,000 SF alone with occupancies by Profill (399,000 SF) and Fed Ex (183,000 SF). Although this submarket saw the highest quarterly absorption, it is difficult to determine, overall, which submarkets are experiencing the most demand due to the lack of supply. These extreme supply constraints are visible within last quarter’s availability rates. For example, the Monroe/Middletown and I-71 Corridor submarkets both have availability rates of 0.0%. The two major markets in Kentucky, The Airport Corridor and Florence/Richwood, only have availability rates of 0.7% and 1.3%, respectively. The Northern Kentucky market is currently experiencing a tremendous influx of new construction, all scheduled to be completed in the first half of 2023. We anticipate these vacancy rates rising in the Northern Kentucky market in 2023 due to not only the completion of these buildings, but also the upcoming availabilities of three second generation buildings, which total 1,750,000 SF.

Developers across the Greater Cincinnati market continue to remain in overdrive working to satisfy the insatiable demand for industrial space. The quarter ended with 12.8 million square feet of space under construction, which marks another record, despite activity appearing to level off. Of that, 3.2 million SF is projected to be completed by the end of the year, with 900,000 SF already being accounted for. The remaining 9.6 million SF is expected to hit the market in 2023. A large portion of the space under construction is speculative bulk space, which accounts for 7 million SF. However, manufacturing space shouldn’t be overlooked, as industry heavyweights, such as Nestlé Purina, account for large swaths of space finalizing their construction. Additionally, average asking rates experienced quarterly increases of 2% overall and 1.5% for bulk space. With rates increasing to record levels and rent escalations following suit, potential tenants face the pressure to secure space while it is available. We anticipate a continued leasing pipeline into 2023 even with the appearance of a slowdown in market activity with new product becoming available. 

Despite steady activity with no obvious signs of a downturn, the struggling economy has still plagued the Cincinnati industrial sector with its share of challenges. Growing inflation, interest rate uncertainty and continued supply-chain issues remain ongoing concerns. While upcoming supply availabilities appear to be the light at the end of the tunnel for a desperate Greater Cincinnati industrial market, aggressive interest rate hikes pose a threat to the future demand. While the effects of increasing interest rates remain uncertain, the market is more than likely going to be tested next year. As supply-chain issues still test the market, smaller build-to-suit construction activity (less than 100,000 SF) continues to be limited by long lead times and high construction costs. However, we are beginning to see these factors stabilize, and it’s possible that the lead time period may be shortening soon. It’s all still very difficult to predict. In the short term, we believe the market will remain strong for the remainder of the year. Overall, the market hasn’t lost any strength which will likely remain in the second half of the year while strong headwinds pose challenges for the long term. However, the market is positioned well to handle the potential challenges ahead. 


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Cincinnati Industrial Report | Q3/2022

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