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Published: 2/1/2009

Vacancies rise in metro retail, industrial, office buildings

BY GARY T. PAKULSKI
BLADE BUSINESS WRITER
First Solar is adding capacity at its factory in Perrysburg Township. First Solar is adding capacity at its factory in Perrysburg Township.
JETTA FRASER / THE BLADE Enlarge | Buy This Photo
Numerous closings in retail included space in Rossford occupied by Linens  N  Things, which shut down chainwide. Numerous closings in retail included space in Rossford occupied by Linens N Things, which shut down chainwide.
JETTA FRASER / THE BLADE Enlarge | Buy This Photo

In a former furniture store at Reynolds Road and Airport Highway, a New Jersey firm is opening a for-profit career college catering to people looking for new jobs. It is one of a string of such schools and beauty academies that have recently opened or are scheduled to open in the area.

In a former sporting goods store in the Westgate area, the Savers chain of second-hand stores plans its second Toledo outlet.

And, among the few retail chains that continue to show interest in the area are dollar stores and auto parts stores catering to do-it-yourselfers seeking to save on car repairs.

That s the growth we re seeing, conceded Kurt Pollex, a specialist in rental and sale of retail properties at CB Richard Ellis/Reichle Klein, Toledo.

Last year was tough for retailers and their landlords locally and nationally. Chains such as Linens N Things and Circuit City called it quits, and concern is growing that slumping sales and tight credit markets will force others to follow in 2009.

Conditions were as tough as one would expect them to be, said Harlan Reichle, managing director of CB Richard Ellis/Reichle Klein.

Retail was the weakest performer in a local commercial real estate sector that, for the most part, was treading water last year, according to vacancy reports issued by the real estate agency.

A record 300,000 square feet of retail space in metro Toledo out of 21 million square feet became available in the second half of the year, the firm reported. The vacancy rate rose more modestly to 14 percent from 13.6 percent at the end of 2007.

In other sectors areawide, vacancies at factories and warehouses climbed to 7.8 percent from 6.6 percent at the end of 2007, and office vacancies increased to 17.3 percent from 16.8 percent.

Major industrial projects like the $83 million expansion by solar panel maker First Solar Inc. and the $92 million FedEx Ground Package System hub, both in Perrysburg Township, are uninterrupted.

And smaller retail and office deals also got done.

Urban Active Fitness and Super Fitness are set to open gyms in Maumee and south Toledo. Hobby Lobby and Appliance Center are both expanding.

DMC Technology Group, an IBM dealer that specializes in computer products and services, moved late last year from rented office space into a 13,000-square-foot building it constructed near King Road and Sylvania Avenue in Sylvania Township.

Owner Pat Sheehan acknowledged that the project began before the economic meltdown. We re glad we did it, he said. We ve got some customers that are having a rough time. But overall our business is doing well.

In retail, however, going-out-of-business signs have become more common at stores and restaurants.

The biggest rise in vacancies was in Perrysburg/Northwood, where empty stores and restaurants increased to 14.4 percent from 8.5 percent at the end of 2007, CB Richard Ellis said.

Also experiencing a steep rise was the south/southwest area of metro Toledo, where vacancies increased to 12.4 percent from 11.5 percent.

Among retail casualties last year was the Value City Furniture store on Woodville Road. Most retail vacancies, however, have involved smaller shops in strip centers.

In some situations, plans for new grocery stores are on hold, CB Richard Ellis reported. Doubts about the regional economy caused most retailers to pull back on growth plans. agents said.

As the retail market has deteriorated, tenants have demanded rent cuts from landlords either out of necessity or because they recognized the timing was right, said Mr. Pollex, of CB Richard Ellis.

Average asking rents for offices dropped to $16.04 a square foot annually from $16.14 at the end of 2007.

Industrial rates dropped to $3.32 a square foot from $3.44. But retail rates rose slightly to $8.76 a square foot from $8.55.

Experts attribute the seeming paradox to the fact that much of the vacated retail space was in newer, higher-quality buildings that tend to fetch higher rents.

Several restaurant chains such as Taco Bell have delayed plans to expand in the area, said Germano Bressan, a retail specialist with Signature Associates in Toledo.

They re waiting to see what is going to happen this year.

Among other major deals last year was Toni & Guy Hairdressing Academy in West Toledo, Southwestern College at Airport and Reynolds, and Herzing College at Hill Avenue and Reynolds, agents said.

A major problem vexing commercial real estate, said Mr. Reichle, is that credit has largely dried up for investors trying to buy in the Toledo area.

Large regional banks will finance sale of factories, office buildings, and other commercial properties for businesses buying for their own use.

But they either are rejecting investors or setting such high requirements that deals fall through.

It s a very difficult environment now, Mr. Reichle said. There is very little buying and selling. That part of our business is virtually shut down.

Meanwhile, Dan Klein, an office specialist at CB Richard Ellis, characterizes the rental market for that space as fairly stable and better than in some other similarly sized Midwest cities.

In part, this is an outgrowth of the low levels of construction in recent years. In some situations, distressed tenants stayed put rather than moved and negotiated rent reductions and other concessions with landlords.

The name of the game is tenant retention, Mr. Klein said.

In some situations, landlords are agreeing to temporary reductions in lease rates in exchange for increases later or for lease extensions, he added.

In downtown Toledo, office vacancies rose by 1 percentage point to nearly 24 percent, with older buildings known as Class C hardest hit.

At an average of $15.48 a square foot, asking rents downtown are 9 percent lower than in the suburbs, CB Richard Ellis said.

In the industrial sector, major vacancies last year included a former Con Agra Foods Inc. plant in Perrysburg which is only partially occupied by new owners; JAC Products Inc., which produced auto parts at a plant in Monclova Township, and MetoKote Corp., also in Monclova Township, which relied on JAC for work.

Other factories will go dark this year, including Textileather, a longtime Toledo manufacturer of fabric for auto interiors that is scheduled to close in March.

Other upcoming vacancies include FedEx s current 32-acre hub off Reynolds Road near Angola Road in Toledo, which the company plans to offer for sale.

Most of the buildings that emptied last year were used by auto industry suppliers, yet fewer than 10 percent of subsequent rentals and purchases were to such tenants, CB Richard Ellis said.

Businesses considering the properties are mostly looking for warehouse space and are involved in manufacturing of food, consumer products, furniture, and solar panels.

Financing is available, but loans can take longer to obtain and carry more stringent credit requirements, said Bob Mack, an industrial real estate specialist at Signature Associates in Toledo.

Prospective tenants continue to look for industrial space.

He has shown the JAC Products plant in Monclova Township to about a dozen prospective tenants, ranging from a government agency to a manufacturer.

Contact Gary Pakulski at:gpakulski@theblade.comor 419-724-6082.



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