Future Cities
2022 North America Industrial Big Box Review & Outlook: Cincinnati
March 11, 2022 5 Minute Read
Cincinnati is among the top-performing markets in the Midwest. The scarcity of readily developable industrial sites has led to a limited supply of new speculative space, rising rental rates and higher building prices. The number of developers evaluating the market continues to increase and competition is fierce in the race for new sites. The diversified local economy driving industrial demand includes e-commerce, manufacturing, consumer packaging, automotive, food and 3PL fulfillment. Strong demand and development are expected to continue for years to come.
Demographics
Cincinnati’s central location makes it an ideal location for big-box occupiers. More than 2.8 million people live within 50 miles of the market core, while 36.8 million or 14.5 million households are within 250 miles.
Figure 1: Cincinnati Population Analysis
Source: CBRE Location Intelligence.
According to CBRE Labor Analytics, the local warehouse labor force of just over 46,000 is expected to grow by 6.8% by 2030. The average wage for a non-supervisory employee is $15.53 per hour, 4.2% higher than the national average.
Figure 2: Cincinnati Warehouse & Storage Labor Fundamentals
Source: CBRE Labor Analytics.
*Median wage (1 year experience); non-supervisory warehouse material handlers.
Location Incentives
Over the past five years, there have been 340 economic incentives deals totaling more than $327 million at an average of $12,687 per new job in the Cincinnati metropolitan area, according to Wavteq.
According to CBRE’s Location Incentives Group, among Ohio’s top incentive programs is the Job Creation Tax Credit (JCTC) program, which provides a refundable and performance-based tax credit that is calculated as a percent of created payroll and is applied toward a company’s commercial activity tax liability. JCTC was designed to create a more competitive business climate in Ohio by incentivizing companies that are considering doing business elsewhere.
Among nearby Kentucky’s top incentive programs is the Kentucky Business Investment (KBI) Program, which provides income tax credits or payroll refunds to businesses engaged in manufacturing, agribusiness, headquarter operations, alternative fuel, renewable energy or carbon dioxide transmission pipelines. To qualify, companies must create and maintain an annual average of at least 10 new full-time jobs for Kentucky residents during the length of the incentive agreement.
Figure 3: Cincinnati Top Incentive Programs
Source: CBRE Location Incentives Group.
Note: The extent, if any, of state and local incentive offerings depends on location and scope of the operation.
Logistics Driver
Cincinnati’s air freight capabilities separate the region from other major big-box markets. The region is home to two large freight airports: Cincinnati-Northern Kentucky International Airport (CVG) and Louisville Muhammad Ali International Airport. CVG is home to DHL, FedEx and the new Amazon Air Hub. Air Cargo World recently ranked it the top air-cargo airport in the world based on a composite score of customer service, performance and value.
Ali International was recently named the world’s fourth-busiest cargo hub by Airport Councils International and is home to UPS World Port, one of the largest package-handling facilities in the world. E-commerce is significantly increasing cargo flights in and out of the airport, where air-package volume grew by 5% year-over-year in 2020.
Cincinnati’s air freight capabilities separate the region from other major big-box markets.
Capital Markets
There is a deep buyer pool, both foreign and domestic, targeting the Cincinnati industrial market. However, a lack of industrial investment opportunities has driven pricing to new records. Cincinnati’s topography limits the amount of available developable land. Core Class A cap rates are in the low 4% range, with a premium for aggregated assets. There are strong expectations for increased sales volume in 2022.
Figure 4: Cap Rate Comparison
Source: CBRE National Partners.
Supply & Demand
Leasing activity tripled year-over-year in 2021 to 16.8 million sq. ft., ninth highest in North America and one of the largest increases in the region. 3PLs led demand with a market share of 37.8%, followed by general retailers & wholesalers at 28.5%. Net absorption nearly tripled year-over-year to 8.2 million sq. ft.
Despite an increase in demand, taking rents remained at $4.26 per sq. ft. Construction completions should pick up this year, with 5.5 million sq. ft. under construction, 41% of which is preleased. High preleasing means vacancy rates will remain under 4% and will cause taking rents to increase this year.
Figure 5: Share of 2021 Leasing Activity by Occupier Type
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.
Figure 6: Leasing Activity
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.
Figure 7: 2021 Construction Completions vs. Overall Net Absorption
Source: CBRE Research.
Figure 8: Direct Vacancy Rate by Size Range
Source: CBRE Research.
Figure 9: Under Construction & Percentage Preleased
Source: CBRE Research.
Figure 10: Historical First Year Taking Rents (psf/yr)
Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research.
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Contacts
James Breeze
Vice President, Global Industrial and Retail Research
John Morris
President, Americas Industrial & Logistics, Advisory Services
