Office Sector
Limited deliveries and modest negative net absorption are keeping Akron’s office market on relatively solid footing heading into 2024. As of the second quarter, office vacancy in Akron sits at 5.9%, well below the national benchmark of 13.8%.
Leasing volume is holding up in Akron and 478,000 SF was leased in the first three quarters of 2023, which is just a 15% decrease compared to the average over the same period in the five years prior to the pandemic. One of the top leases signed in recent quarters comes from Total Quality Logistics, which signed for 14,300 SF at Akron Centre Plaza in 23Q2. Despite healthy leasing activity, net absorption remains in the red and around 400,000 SF of space was returned to the market over the past 12 months as office tenants relocate and downsize.
Office space in Akron rents for less than half the national average and sit slightly below neighboring Cleveland, at just $16.30/SF. Similar to national trends, rent growth in Akron is decelerating, but at a faster pace than the national trend. As of the second quarter, annual gains in Akron sit at 0.8% compared to the national benchmark of 0.9%.
Sales volume in Akron is holding steady and totals $106 million over the trailing 12-month period, which is in lien with the past two years. However, volume will likely moderate over the coming months as interest rates remain elevated. National players represent an increasing share of buyers in Akron and were behind over 70% of sales volume recorded over the past year.
The top sale over the past year closed in 23Q2 when an 18,000-SF medical office property in Northfield traded for $10.7 million ($586/SF). An individual buyer purchased the asset, which is fully leased to Optima Dermatology. The deal closed at a 6.5% cap rate.
Medical office assets are behind many of the top deals in the market in recent quarters. The top sale of 23Q3 was a medical office property on Cleveland Massillon Rd. in the Fairlawn/Montrose Submarket. Jupiter Texas Real Estate Investment Group acquired the asset from OBGYN Associates of Akron for $2.4 million $117/SF). The multi-tenant property was fully leased at the time of sale and traded at an 8.3% cap rate.
One of the most recent trades closed in November when 1550 Corporate Woods Parkway in Uniontown sold for $2.2 million ($101/SF). The medical office property was fully leased at the time of sale.
Industrial Sector
Akron is the largest of Ohio’s secondary industrial markets, with 117 million SF of space and total asset value of $6.4 billion. Consistent with the Cleveland industrial market, the proportion of logistics and flex space sits below the U.S. average, while manufacturing is well above.
Akron’s industrial market is on solid footing moving into 2024. While demand has not reached record levels as seen in other distribution-heavy markets in the region, annual net absorption is still healthy and totals 710,000 SF, more than twice the average over the same period in the five years leading up to the pandemic. One of the largest move-ins recorded over the past year came from LTA which leased 372,000 SF at Plant C at 1210 Massillon Rd. in Akron. The company took occupancy of the space in 23Q2. In 23Q1, All Pro Freight Carriers leased 216,000 SF at 1366 Commerce Dr. in Stow.
Leasing activity remains elevated and 3.3 million SF was leased over the trailing 12-month period, which is 50% above the pre-pandemic average. One of the top move ins anticipated for the first quarter of 2024 come from FNS, Inc., which will occupy 434,000 SF at Gateway Commerce Center in Streetsboro. Haydon Corporation will occupy another 254,500 SF at Seasons Business Center 6 in Stow in early 2024.
Akron has historically been a quiet development market and deliveries in 2023 were limited compared to the national level and neighboring markets like Cleveland and Columbus. Few deliveries paired with healthy demand have kept vacancy tight in Akron, hovering around 4.0% compared to the national benchmark of 6.3%. With just 350,000 SF underway, or 0.3% of total market inventory, market conditions will likely remain tight in Akron over the near term. Similar to the national trend, industrial rent growth in Akron is decelerating and annual growth averages 4.4%, still a healthy figure for the market. Manufacturing space is supporting rent growth in Akron, with gains of 2.8%, reflecting tight vacancies and strong demand for modern manufacturing space.
Investment activity accelerated in Akron throughout 2023. Quarterly volume remains muted, however, and sales in 23Q4 totaled $26 million, which is still below the average fourth-quarter volume in the years preceding the pandemic.
While sales above $20 million are rare in the market, it was not uncommon to see deals closing between $5 million and $15 million in the years leading up to the pandemic. The impacts of high interest rates are evident in the drop off in larger deals. Typical trades in the market over recent quarters consist of buildings smaller than 50,000 SF which sold for less than $5 million.
Institutional buyers are rare in the market and the lion’s share of activity comes from users and private investors. The top sale last year closed in October when Piping Rock Health Products purchased its 169,000-SF warehouse in Streetsboro. The deal closed at a price of $10.3 million ($60.95/SF).
Sales in the first quarter of 2024 have already eclipsed the past three quarters and more than $35 million traded hands year to date. The top sale closed in January when a 248,000-SF Amazon warehouse sold for $22.9 million ($92.34/SF). An out-of-state private buyer acquired the property from Omega Industrial at a 6.5% cap rate.
With the cost of debt still elevated, a disconnect between buyer and seller expectations on property valuations could weigh on transaction volume and pricing over the coming months, and sales volume will likely remain below pre-pandemic levels in the months ahead.
Retail Sector
The Akron retail market has a vacancy rate of 2.9%. This vacancy rate is 0.1% higher than it was this time last year. There has been 21,000 SF of negative absorption and 26,000 SF of net deliveries. Rents have increased 1.5% in the past 12 months and are currently around $14.40/SF.
Roughly 4,800 SF is under construction in the Akron retail market. In the past year, there have been 159 sales, which traded for approximately $72.9 million in volume.
Vacancy is 1.6% in general retail buildings, and 81,000 SF has been absorbed in this asset class over the past year. Vacancy is 7.5% in malls, and absorption has been flat in this asset class over the past year. Vacancy is 2.8% in power centers, and 87,000 SF has been absorbed in this asset class over the past year. Vacancy is 4.6% in strip centers, and there has been 48,000 SF of negative absorption in this asset class over the past year. Vacancy is 5.7% in neighborhood centers, and there has been 140,000 SF of negative absorption in this asset class over the past year. Vacancy is 4.7% in other retail buildings, and absorption has been flat in this asset class over the past year.
Rents are around $13.60/SF in general retail buildings, $24.00/SF in malls, $16.60/SF in power centers, $14.70/SF in strip centers, $14.50/SF in neighborhood centers, and $18.00/SF in other retail buildings. Rent growth was 1.4% in general retail buildings, 1.7% in malls, 1.8% in power centers, 1.4% in strip centers, 1.6% in neighborhood centers, and 1.9% in other retail buildings.
Current vacancy is lower than its trailing three-year average of 3.0%, which is also lower than the national trailing three-year average of 4.3%. Rents have increased 11.4% over the past three years. Meanwhile, average rents increased 11.5% nationwide. There have been 624 sales over the past three years, amounting to $359 million in volume and 5.1 million SF of inventory.
CoStar’s estimated cap rate for Akron has averaged 8.6% over the past three years, and matches the market’s current estimated cap rate.
The total Akron retail market comprises 48.8 million SF of inventory.
There have been 159 sales in the Akron retail market over the past year, amounting to $72.9 million of volume and 860,000 SF of stock. These sales have averaged $90/SF, below the estimated market price of $109/SF. During this time, trailing one-year price per SF averages were as high as $96/SF and as low as $90/SF. Over the past three years, Akron has averaged 206 sales per year, $124 million of volume per year, and 1.8 million SF of stock per year. Of the sales in the past 12 months, 138 were of general retail. Strip centers were traded 13 times. Neighborhood centers were sold 8 times. The market’s current transaction cap rate stands at 6.7%, above the national average of 6.6%. Over the past three years, transaction cap rates have averaged 7.1%. Within Akron, General Retail has market cap rate of 8.5%, Malls have a market cap rate of 8.6%, Power Centers have a market cap rate of 8.7%, Strip Centers have a market cap rate of 8.4%, Neighborhood Centers have a market cap rate of 8.9%, and Other Retail has a market cap rate of 8.8%.
Akron Economy
Prior to the coronavirus pandemic, the Akron market was experiencing weak employment and demographic trends. Effects of the recession resulted in a sharp contraction in employment in Akron relative to other markets in the region. Total employment fell by 47,000 jobs in April 2020, driven by losses in the manufacturing and education and health services industries. In line with the U.S., job growth resumed in May 2020, with around 39,000 jobs recovered as of November 2022. However, total employment remains 3% below pre-pandemic levels while national employment sits 2.6% above pre-crisis levels.
While the pace of job growth will slow further in coming quarters, recovery in Akron is expected to lag other metros. This reflects the market’s exposure to vulnerable industries such as manufacturing, which continues to face headwinds from dampened domestic and global demand. In CoStar’s baseline forecast, just under half of jobs lost are recovered by the end of the year and although the metro comes close, it does not reach the prior peak in employment through the forecast period.
The impacts of the coronavirus have varied by industry. Sectors that have been hit the hardest include retail trade and leisure and hospitality. Retailers such as restaurants and gyms that have contributed heavily to leasing activity in recent years have been severely impacted by state-mandated closures, while essential retailers like grocery stores have fared better. Overall retail sales fell by 16.4% in April, led by declines in apparel, electronics, and furniture stores. Non-store retail, which includes online sales, was the only category to post a gain, fueled by increased adoption of ecommerce as consumers increasingly shop from home.
Akron remains a blue-collar metro, with sizable exposure to the factory sector, even after the decline of rubber manufacturing. And, exposure to non-cyclical sectors is somewhat lower, providing less of an offset to the metro’s manufacturing related risk. The metro is less exposed to other vulnerable sectors, however, including construction and leisure and hospitality. On net, the metro is likely to experience a contraction on par with or somewhat worse than the U.S. overall, with steep declines in business investment and employment over the near term.
With Goodyear Tire representing the last rubber producer in Akron, the city is seeking to expand its reach by capitalizing on its historical strength in polymers. As the center of Northeast Ohio’s Polymer Valley, Akron houses 45% of the state’s polymer industries. The University of Akron opened the first college of Polymer Science and Polymer Engineering and is home to the National Polymer Innovation Center. Goodyear remains committed to the city and opened a new, state-of the-art headquarters in 2013. The office reflects Akron’s shift from historical roots: Employees now perform office- and research-oriented roles rather than assembly line work.
The city is also actively repurposing old industrial and office properties, including the former Firestone Tire headquarters in Firestone Park. In 2012, Bridgestone opened the $450 million Bridgestone Technical Center, which houses about 450 employees working to research and develop new tire technologies. Bridgestone also revealed plans for a new race tire manufacturing facility, to be located across the street from the Technical
Center. Just down the road, the redevelopment of the 20-acre Firestone Business Park is underway. Already home to APV Engineered Coatings, plans include a 100,000-SF warehouse and manufacturing facility, developed by Pleasant Valley, and a 50,000-SF facility for the Summit County Department of Sanitary Sewer Services.
Like many of Ohio’s cities, healthcare is an important driver of economic growth, representing three of the city’s top employers. Akron has designated a Biomedical Corridor, aimed at attracting health-related ventures, encompassing 1,200 acres bounded by Akron General and the city center (and including Akron Children’s Hospital). Akron Children’s recently completed an $84 million expansion of its professional building, which doubled the size to 480,000 SF. Summa, recently acquired by Beaumont Health, completed a $220 million tower this spring, at the Akron City Hospital campus. The 343,000-SF tower houses same-day surgery, labor and delivery, private patient rooms, and an expanded breast center.
The city recently revealed a new economic redevelopment plan, Elevate Akron, which seeks to address economic challenges, restructure the region’s approach to economic development, revitalize the city’s downtown core, and be more inclusive toward the minority populations. The region’s first open innovation hub, Bounce Innovation Hub, opened in January 2018 in the former B.F. Goodrich plant downtown. The hub provides an incubator program, mentoring program, and a software accelerator.