Material scarcity complicates the picture of real estate

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This is an uneven picture of real estate in the Greater Cleveland area. The industrial market is incredibly narrow, with an all-time low vacancy rate of around 3.8 percent – posing major challenges for those looking for real estate.

There are many office premises. Since many companies’ employees have not yet returned, there has been an increase in subletting as tenants tend to use unoccupied premises. This is the strategy of Eliot Kizhevsky, Senior Vice President Cushman and Wakefield | CRESCO Real Estate, he says, is actually buying time until people return to the offices, the lease expires, or the tenant finds a new room of the right size.

“A tenant can have 20,000 feet to sublet,” he says. “The landlord is still getting paid for the rent, but no one comes to downtown for lunch.”

The same thing happens in retail. There is real estate, but the occupancy rate is influenced by macroeconomic factors. For example, now it is much more convenient for many people to order goods on the Internet. This has changed the way retailers use their brick and mortar buildings, and some have transformed their premises into fulfillment centers.

“More and more retailers who have tuned in to consumer traffic are now playing the just-in-time game,” says Kievski. “Some of them take 100,000 square feet of storage space and allocate it for inventory only.”

The lack of materials further complicates the picture of real estate. New construction and renovation times have been lengthened as materials have skyrocketed in price and are becoming increasingly difficult to find.

Smart business spoke with Kievsky about the real estate situation in Greater Cleveland.

What are industrial property seekers looking for today?

There are practically no industrial facilities, and this has been the case for the past nine months. This problem is exacerbated because the cost of construction has become more expensive – land is more expensive, as well as the materials and labor required for both new construction and renovation.

Buyers either pay much higher prices or sacrifice space or amenities to get what they absolutely need to do their job.

In 2019, some landlords and buyers managed to convert unused office and retail space to industrial space to take advantage of the limited market. However, material problems combined with structural constraints are not discussed. In addition, nearly everything built to specification in Northeast Ohio is leased by the time the final coat of paint is applied and the castle is installed.

What happens in the office and in retail?

The office and commercial situation in Greater Cleveland is the exact opposite of the industrial situation. Those looking to do a retail or office deal will close the deal in this environment. Landlords, however, are not as willing to make the same concessions they made when the pandemic broke. In March and April 2020, landlords sought to work with tenants by offering several months of free rent in exchange for the tenant adding a year or two to the deadline. These temptations are mostly over. But still, those looking for an office or retail space have many options and exceptional prices and other incentives.

How does the lack of materials affect the picture of real estate?

Lumber, steel, concrete and glass required for renovations and new construction can have a backlog of three to nine months. Companies that don’t do business with a builder or contractor who has an inventory of these items should expect delays, and it’s unclear when this will work of its own accord. There are materials in the ports that need to be sent, which means that the trucks will be on the way. It is also about getting people back to work. Some signs indicate that the availability of materials may improve towards the end of the year, but the current conditions are more likely to persist in the first or second quarter of next year.

The bottom line is that business leaders need to be prepared. Expect delays and include them in your move or renovation schedule. And get everything planned and ordered as soon as possible. Then get ready. Once things start opening up again, you will need to act quickly.

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