Office Sector
Limited deliveries and positive net absorption are keeping Akron’s office market on relatively solid footing heading into the second half of 2024. As of the third quarter, office vacancy in Akron sits at 6.8%, well below the national benchmark of 13.8%.
Leasing volume is holding up in Akron and 400,000 SF was leased over the past 12 months, which is just a 15% decrease compared to the average over the same period in the five years prior to the pandemic.
Office space in Akron rents for less than half the national average and sit slightly below neighboring Cleveland, at just $16.40/SF. Similar to national trends, rent growth in Akron is decelerating, but at a faster pace than the national trend. As of the third quarter, annual gains in Akron sit at 0.9% compared to the national benchmark of 1.1%.
12-month sales volume in Akron remains above average thanks to a strong fourth quarter in 2023. Around $105 million traded hands over the past year compared to the 10-year average of $80.0 million. Quarterly volume moderated recently, and around $10 million traded hands in each of the first two quarters of 2024. The active buyer profile has shifted in recent quarters, considering the significant move away from larger transactions. Over the past five years, acquisitions from institutional buyers represented 36% of total volume, and another 36% came from private buyers, such as developers. While private buyers still represent about a quarter of deals in the market over the past year, institutional investors were absent, and users are filling the gap and accounted for more than 70% of deal volume over the past 12 months.
12-month sales volume in Akron remains above average thanks to a strong fourth quarter in 2023. Around $105 million traded hands over the past year compared to the 10-year average of $80.0 million. Quarterly volume moderated recently, and around $10 million traded hands in each of the first two quarters of 2024.
Over the past decade, deals closing between $10 million and $30 million have not been uncommon. However, the impacts of high interest rates are felt most among deals within this range, and only three transactions above $10 million were recorded over the past 12 months. Most of the top sales in recent months ranged between $1 million and $5 million.
The active buyer profile has shifted in recent quarters, considering the significant move away from larger transactions. Over the past five years, acquisitions from institutional buyers represented 36% of total volume, and another 36% came from private buyers, such as developers. While private buyers still represent about a quarter of deals in the market over the past year, institutional investors were absent, and users are filling the gap and accounted for more than 70% of deal volume over the past 12 months.
The top sale over the past year closed in 23Q4 when First Energy purchased its offices at 76 S Main Street in downtown Akron for $49 million ($136.75/SF). The company announced that it will relocate its corporate campus to its West Akron location, and eventually shut down operations at the building. First Energy made the decision based on the large majority of its workers who can operate remotely, and is shedding excess real estate. The firm had signed a ten year lease renewal in 2019, but determined that buying the property was the most beneficial way to continue its space consolidations.
The top sale year to date closed in February when an out-of-state private buyer acquired a 16,300-SF medical office property at 5778 Darrow Road in Hudson. The asset traded for $3 million ($185/SF) and was fully leased at the time of sale. The deal close at a 7.8% cap rate.
Industrial Sector
Akron is the largest of Ohio’s secondary industrial markets, with 118 million SF of space and total asset value of $6.3 billion. Consistent with the Cleveland industrial market, the share 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 mid-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 590,000 SF, which is in line with the average over the same period in the five years leading up to the pandemic.
Leasing activity remains elevated and 2.6 million SF was leased over the trailing 12-month period, which is 17% above the pre-pandemic average. One of the top move-ins year to date came from FNS, Inc., which occupied 434,000 SF at Gateway Commerce Center in Streetsboro. Haydon Corporation occupied 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 3.5% compared to the national benchmark of 6.6%. With just 250,000 SF underway, or 0.2% 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 3.4%, still a healthy figure for the market. Manufacturing space is supporting rent growth in Akron, with gains of 2.5%, reflecting tight vacancies and strong demand for modern manufacturing space.
Investment activity increased for the third consecutive quarter in Akron in 24Q1. Around $40 million traded hands in the first quarter of 2024, which is 25% above the average first-quarter volume in the five years preceding the pandemic.
Over the past decade, deals closing between $10 million and $30 million have not been uncommon. Impacts of the rising cost of debt are felt most among larger deals, and only three trades above $10 million were recorded over the past 12 months. Most top deals in recent months range between $1 million and $3 million.
The buyer profile shifted over the past year, particularly among institutional investors and REITs, which were absent from the buyer pool over the past 12 months. Users and private buyers are filling the gap and each accounted for 50% of 12-month sales volume.
As leasing trends soften, buyers are targeting assets with in-place cash flow, and recently delivered, fully leased assets represent the top trades in Akron. The largest deal that closed year to date is an Amazon distribution center in Twinsburg that delivered in 2016. New York-based Kokot Realty Enterprises acquire the asset from Omega Industrial for $22.9 million ($92.34/SF). The deal closed at a 6.5% cap rate.
Owner-user transactions and sale-leasebacks were behind most of the top trades in the market in recent months. One example comes from Brennan Investment Group based in Rosemont, Illinois which purchased a 31,000-SF manufacturing facility in Tallmadge. The property is fully occupied by The Cypress Companies and sold for $1.8 million ($57.90/SF) in a sale-leaseback.
Transaction activity will likely continue to moderate in the months ahead as interest rates remain elevated and rent growth decelerates, allowing users and private buyers to acquire discounted assets.
Retail Sector
Weak demand is pushing retail vacancy slightly higher in Akron heading into the second half of 2024. Historically low availability weighs on net absorption, and available space has sat below 2 million SF since mid-2022.
Limited availability is a key factor in muted absorption trends as tenants struggle to find high-quality space. Average months to lease has fallen to a record low below five months, suggesting that when space becomes available, it is leasing quickly. While limited availability has weighed on leasing volume over recent months, quarterly activity is only slightly below pre-pandemic levels.
In line with national trends, tenants driving leasing activity in Akron include discount and off-price retailers, which continue to expand their footprints. This group was behind a quarter of leasing volume in Akron and was most active in spaces larger than 20,000 SF. Food service retailers were also active in the leasing environment and were behind one-third of leasing volume in spaces under 3,000 SF.
Availabilities in Akron will remain tight over the near term as elevated financing rates and the high cost of labor and materials weigh on construction starts. Just 17,000 SF of space is under construction, which represents 0.0% of total market inventory.
In addition to tight market conditions, elevated levels of consumption are also propping up rent gains in Akron. The boost in retail spending coming out of the pandemic supported gains in income for retailers that support strong rent growth. Year-over-year gains in Akron sit at 1.3% compared to the national benchmark of 2.5%.
Consumers are still impacted by macroeconomic headwinds in Akron, with high prices, elevated cost of debt weighing on spending. Higher costs are also impacting retailers and reducing profitability, which could lead to an uptick in store closures. So while demand is expected to be healthy in coming years, it could trail more typical levels. Still, with little space underway, retail availability remains tight.
After holding steady for the past four quarters, quarterly sales moderated in Akron in the second quarter of 2024. Around $10 million traded hands in 24Q2, which is 75% below the average second-quarter volume in the five years preceding the pandemic.
Over the past decade, deals closing between $10 million and $20 million have not been uncommon. Impacts of the rising cost of debt are felt most among larger deals, and no trades above $10 million were recorded over the past 12 months. Most top deals in recent months range between $1 million and $3 million.
Grocery-anchored neighborhood centers have also been a favored asset class in recent years and is behind one of the top sales over the past 12 months. In February, Hagerstown, Maryland-based Washco Companies acquired Sagamore Square, which is anchored by Marc’s, for $7.4 million ($79.57/SF). The property last sold in 2022 for $6.3 million.
The single-tenant net leased sector is also driving activity, particularly among private buyers. Cap rates among these deals over the past 12 months ranged from 5.5% to 6.5%, which is up 50 basis points from the same period the prior year. Trades typically ranged from $1 million to $3 million and largely consisted of freestanding, quick-service restaurants and drug stores.
Market conditions may support steady investment volume in the months ahead as the retail sector continues to benefit from healthy consumer spending and elevated rent growth. Akro’s record low construction starts should keep availabilities tight over the near term, luring additional capital into the area.
Akron Economy
The economy of Akron, Ohio, has been evolving significantly in recent years, with a notable shift from its traditional manufacturing base to a more diversified economy. Historically recognized as the “Rubber Capital of the World” due to its dominance in tire manufacturing, Akron has been transforming into a hub for healthcare, education, and technology. This shift has been driven by the decline of traditional manufacturing industries and the rise of sectors like healthcare, which includes major employers such as Akron Children’s Hospital and Summa Health. Additionally, the University of Akron plays a crucial role in supporting this transformation by providing a skilled workforce and fostering innovation through research and development.
Entrepreneurial activity has seen a notable increase in Akron, contributing to a more vibrant and diverse local economy. Initiatives like the Bounce Innovation Hub have been instrumental in supporting startups and fostering a culture of innovation. These efforts have been complemented by the successful revitalization of downtown Akron, which has attracted new restaurants, shops, and entertainment venues, thereby enhancing the city’s appeal to both residents and visitors. This economic diversification is crucial for Akron’s resilience and long-term growth.
The industrial real estate sector in Akron has experienced a mixed impact due to the evolving economy. On one hand, the decline of traditional manufacturing has led to vacancies in older industrial spaces. However, there has been a growing demand for modern industrial facilities, particularly those that can support advanced manufacturing and logistics. The rise of e-commerce has also fueled demand for warehousing and distribution centers. Industrial parks and facilities near transportation hubs are seeing increased interest, and there is potential for redevelopment of older industrial sites to meet contemporary needs.
The office sector in Akron is experiencing a period of adjustment. With the rise of remote work, demand for traditional office spaces has fluctuated. However, there is still a need for high-quality office spaces that can support collaborative work environments and attract top talent. Co-working spaces like those offered by the Bounce Innovation Hub have become popular, providing flexible office solutions for startups and small businesses. Additionally, there is interest in converting older office buildings into mixed-use developments, which can help revitalize urban areas and provide a blend of office, residential, and retail spaces.
The retail sector in Akron has been undergoing significant changes, influenced by broader trends in consumer behavior and the rise of e-commerce. Traditional brick-and-mortar retailers have faced challenges, leading to closures of some stores. However, there has been growth in experiential retail, where stores offer unique experiences that cannot be replicated online. The revitalization of downtown Akron has also boosted the retail sector, with new shops and dining options attracting both residents and visitors. Mixed-use developments that combine retail with residential and office spaces are becoming more popular, contributing to a more dynamic urban environment.
Despite these positive developments, Akron still faces economic challenges. Income inequality and workforce development remain pressing issues. While some areas are thriving, others continue to struggle with poverty and unemployment. Addressing these disparities requires targeted workforce development programs, improved education, and job training initiatives. Partnerships between local government, businesses, and educational institutions are essential to ensuring that all residents have access to economic opportunities.
Looking ahead, Akron’s economy has a promising future, supported by ongoing investments in infrastructure and community development projects. The city’s strategic location, strong healthcare sector, and growing emphasis on technology and innovation position it well for continued growth. By leveraging its assets and addressing its challenges, Akron has the potential to build a more inclusive and sustainable economy. This will not only benefit the industrial, office, and retail sectors of commercial real estate but also enhance the overall quality of life for its residents.