Research CLEVELAND 1Q17 INDUSTRIAL MARKET. Current Conditions. Greater Cleveland posted its 18th consecutive quarter of positive net absorption

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1 Market continues to Tighten into 2017 The Greater Cleveland industrial market absorbed 654,659 square feet in the first quarter of 2017, marking the 18th consecutive quarter of positive tenancy gains. The positive growth moved the overall industrial vacancy rate down three basis points from the end of 2016 to 6.5%. This is the market s lowest vacancy rate since NGKF began its current methodology of tracking industrial real estate statistics and marks a vacancy percentage at or below 7. for the fourth consecutive quarter. In fact, the vacancy rate continues to decrease despite several new speculative buildings delivering over the last few years. Additional projects are either currently under construction or in the planning stages that also demonstrate market demand. As vacancy decreased, the average asking rental rate increased in firstquarter 2017 to $4.18/SF, up $0.07/SF from the previous quarter and its highest level since first-quarter Once again, the suburban submarkets commanded the highest rental rates, and the Southeast submarket s $5.37/SF, up $0.07/SF from last quarter, was the highest. As they both did last quarter, the Southwest and South Central submarkets followed the Southeast with average rental rates of $5.18/SF and $4.87/SF, respectively. The Southwest rental rate ticked up $0.35/SF from last quarter and led all submarkets with the largest increase, while the South Central rental rate increased by $0.19/SF. Southeast Hot Once Again In the Southeast submarket, the fully leased, 173,052-square-foot masonry warehouse and office building at Fargo Road in Bedford Heights sold to STAG Industrial Holdings, LLC for $7.6 million, or $44/SF. The transfer from a group of local investors to the Boston-based real estate investment trust (REIT) is evidence of a still-robust industrial investment climate. In fact, with vacancy hovering near a generational low, this price is still below the building s replacement value, but could prove to be a smart move in the not-so-distant future. The Southeast also saw Amazon begin operations in late 2016 at its new, 248,000-square-foot, built-to-suit Northeast Ohio facility at Twinsburg s CornerStone Business Park. Additional developments in this submarket include Nestle USA s announcement that it will bring 300 jobs to its near-600,000-square-foot plant on Harper Road in Solon by the end of It was also announced that Piping Rock Health Products LLC, a manufacturer and distributor of natural products, will move into 777 Lena Drive in Aurora, most likely sometime later this year. The move will bring an initial 175 jobs that will grow to 350 in five years. The Southeast rebounded from last quarter s negative absorption by leading all submarkets this quarter with 289,411 square feet of tenancy gains. Vacancy dropped by two basis points from fourth-quarter 2016 to a low 5.1% as a result. This comes as over 600,000 square feet of new product is being built in this submarket. Current Conditions Greater Cleveland posted its 18th consecutive quarter of positive net absorption All submarkets saw positive absorption in 1Q17 Vacancy hasn t increased since 2011; dipped to 6.5% Overall average asking rental rates inch higher to $4.18/SF Several large industrial property sales lead off the year Market Analysis Asking Rent and Vacancy $0 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 Net Absorption Square Feet, Millions $5 $4 $3 $2 $1-2 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 Market Summary Average Asking Rent (Price/SF) Vacancy (%) Current Quarter Prior Quarter Year Ago Period % 12 Month Forecast Total Inventory 294MSF 297MSF 295MSF Vacancy Rate 6.5% 6.8% 7.1% Quarterly Net Absorption 654, , ,169 Average Asking Rent $4.18 $4.11 $4.03 Under Construction 605, , ,600 Deliveries 0 433, ,020

2 Northeast Submarket Made Strides The Northeast had the largest vacancy change of any submarket with a decrease of 120 basis points from the previous quarter to 6., reaching 161,233 square feet in positive absorption. Although it did not affect this quarter s absorption and vacancy numbers, a significant development in this submarket took place at Euclid s Bluestone Business Center 2, where an 84,609-square-foot lease was signed by a confidential tenant that should occupy its space in the third quarter. This is noteworthy because Bluestone is another newly constructed speculative project. The fact that companies are signing leases at newly constructed facilities despite the tightness of the overall industrial market is further proof that the market remains healthy and there continues to be a demand for quality industrial space in Greater Cleveland. The Northeast also saw a couple of newsworthy items since fourthquarter In late December 2016, Malish Plastics moved its headquarters and manufacturing operations from its 84,000-square-foot Willoughby site to a 160,000-square-foot facility in Mentor, and ABB Group announced plans to leave its current 500,000-square-foot Wickliffe facility located at Euclid Avenue to lease a brand-new, much smaller 135,400-square-foot facility that will be built in Highland Hills s Chagrin Highlands area by Weston, Inc., which will also own the facility. The Northeast submarket s rental rate jumped by $0.18/SF to $3.74/SF, prompting it to move ahead of the Northwest this time around. The average asking rental rate in the Northwest submarket was the secondlowest of all submarkets at $3.71/SF, yet it still increased by $0.08/SF from fourth-quarter The Northwest s vacancy decreased from last quarter by seven basis points to 9. and had 80,752 square feet in positive absorption. The Downtown submarket had the lowest asking rental rate, which stood at $3.10/SF, a $0.21/SF decrease from last quarter. Despite 43,463 square feet in positive absorption this quarter, the Downtown submarket s vacancy increased by five basis points to 8.8%. This was due to several obsolete buildings being removed from inventory or shifted to more appropriate submarkets. The quarter s largest sale took place here, as the 336,740-square-foot Cleveland Technology Center located at Rockwell Avenue sold to H5 Data Centers of Denver for $30.5 million, or $91/SF. The South Central submarket, which finished the quarter with 7,230 square feet of positive absorption, also saw a big announcement, as Charter Steel announced plans to build a new, $150 million steel mill adjacent to its current facility located at 4300 East 49th Street. Vacancy in this submarket decreased by four basis points from last quarter to 7.. Southwest very tight The Southwest submarket continued to contribute to the tightening of the overall Cleveland market, as it netted 72,570 square feet of positive absorption. Once again, it had the lowest vacancy of any submarket at 3., down 10 basis points from fourth-quarter Resulting from this area s perpetual lack of industrial space was the development of a speculative warehouse in 2016 at Foltz Industrial Parkway in Strongsville. The 185,840-square-foot building is now online and is 88. leased as of the end of this quarter. It was the first spec building built on Cleveland s west side since Another spec building, expected to measure approximately 197,440 square feet, is due to begin construction at this site later this year. Select Lease/User Transactions Tenant Building Submarket Type Square Feet Confidential Tenant Foltz Industrial Pkwy. Southwest Direct 115,992 Custom Products Corporation Carter St. Southeast Renewal 108,863 Confidential Tenant Bluestone Business Center 2 Northeast Direct 84,609 Daltile 5185 Richmond Rd. Southeast Direct 69,760 Mantua Manufacturing Rockside Rd. Southeast Direct 60,000 Select Sales Transactions Building Submarket Sale Price Price/SF Square Feet Rockwell Ave. Downtown $30,576,200 $91 336, Aurora Hudson Rd. Southeast $4,960,000 $68 73, Industrial Park Blvd. Northeast $6,454,194 $56 115, Fargo Ave. Southeast $7,636,651 $44 173, Aurora Rd. Southeast $1,385,000 $43 32,000 2

3 Submarket Statistics Total Under Total Qtr YTD WH/Dist R&D/Flex Total Inventory Construction Vacancy Absorption Absorption Asking Rent Asking Rent Asking Rent (SF) (SF) Rate (SF) (SF) (Price/SF) (Price/SF) (Price/SF) Downtown 70,967, % 43,463 43,463 $2.29 $3.45 $3.10 Northeast 47,762, , ,233 $3.51 $7.10 $3.74 Northwest 23,527, ,752 80,752 $5.07 $8.19 $3.71 South Central 33,071, ,230 7,230 $4.52 $7.59 $4.87 Southeast 79,906, , % 289, ,411 $4.30 $8.06 $5.37 Southwest 38,887, ,570 72,570 $4.41 $9.74 $5.18 Market 294,504, , % 654, ,659 $3.58 $7.69 $4.18 3

4 Economic Conditions Greater Cleveland s year-over-year growth in payroll employment dipped each month from November 2016 to January November saw a 12- month increase of 0.5%, while December and January tallied increases of 0. and 0.1%, respectively. Preliminary numbers from February 2017 indicate a possible rebound. Even so, the current payroll employment percentage gap of 1.5% between the Cleveland area and the United States represents the largest difference (along with December 2014) in five years. January s Employment Growth by Industry numbers show that the total nonfarm 12-month change was just 0.1% despite six of 10 industries posting positive employment gains from the prior year. The manufacturing sector experienced the largest loss in growth at negative 2.5%, followed by the leisure and hospitality sector at negative 1.. Conversely, the biggest gains in employment since 2016 were in the education and health services sector at 2.9%, followed by the financial activities sector at 1.9% and the other services sector at 1.8%. Employment By Industry Cleveland-Elyria-Mentor 9.7% 3.8% % % 11.5% 17.5% 1.3% 6. Mining, Logging, and Construction Manufacturing Trade, Transportation, and Utilities Information Financial Activities Professional and Business Services Education and Health Services Leisure and Hospitality Other Services Government Unemployment Rate Payroll Employment Seasonally Adjusted 1 8% Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change 3% 1% -1% - United States United States Cleveland-Elyria-Mentor Consumer Price Index (CPI) All Items, 12-Month % Change, Not Seasonally Adjusted, = United States Cleveland-Elyria-Mentor Employment Growth by Industry Cleveland-Elyria-Mentor, January Month % Change Seasonally Adjusted Total Nonfarm Mining/Logging/Construction Manufacturing Trade/Transportation/Utilities Information Financial Activities Prof & Bus Services Education and Health Services Leisure and Hospitality Other Services Government

5 Cleveland 1350 Euclid Avenue Suite 300 Cleveland, OH Newmark Grubb Knight Frank United States Office Locations Matthew Orgovan Research and Marketing Manager Rachael Brady Research Coordinator Newmark Grubb Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents. Newmark Grubb Knight Frank Research Reports are also available at All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Grubb Knight Frank (NGKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NGKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NGKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.