Future Cities
2023 North America Industrial Big Box Review & Outlook: Cincinnati
April 4, 2023 5 Minute Read
The Cincinnati big-box market finished 2022 with record low vacancy and record high taking rents, but a significant amount of new supply is expected in H2 2023. A diversified local economy with multiple demand-drivers should help absorb this space, while setting new benchmarks for market deals.
Demographics
Cincinnati’s central location makes it ideal for big-box occupiers. More than 2.8 million people live within 50 miles of the market core, while 36.6 million or 14.5 million households are within 250 miles—more than Atlanta, Los Angeles County or DFW.
Figure 1: Cincinnati Population Analysis
Source: CBRE Location Intelligence, Q4 2022.
The local warehouse labor force of 47,749 is expected to grow by 8.8% by 2032, according to CBRE Labor Analytics. The average wage for a non-supervisory employee is $19.73 per hour, 16.8% above the national average.
Figure 2: Cincinnati Warehouse & Storage Labor Fundamentals
Source: CBRE Labor Analytics, Q4 2022.
*Median wage (1 year experience); non-supervisory warehouse material handlers.
Location Incentives
Over the past five years, there have been 450 publicly known economic incentives deals totaling more than $451 million for an average of $12,460 per new job in the Cincinnati metropolitan area, according to Wavteq.
CBRE’s Location Incentives Group reports that top incentive programs in Ohio include the Job Creation Tax Credit (JCTC) program, offering a refundable and performance-based tax credit calculated as a percent of created payroll and applied toward a company’s commercial activity tax liability. JCTC was designed to create a more competitive business climate.
A top incentive program in nearby Kentucky is the Kentucky Business Investment (KBI) Program, offering 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 local jobs during the span of the incentive agreement.
Figure 3: Cincinnati Top Incentive Programs
Source: CBRE Location Incentives Group, Q4 2022.
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. It is home to two large freight airports: Cincinnati-Northern Kentucky International Airport (CVG) and Louisville Muhammad Ali International Airport. CVG hosts DHL, FedEx and the new Amazon Air Hub. Air Cargo World recently ranked it the world’s top air-cargo airport, based on a composite score of customer service, performance and value. Ali International was named the world’s fourth-busiest cargo hub by Airport Councils International. It is home to UPS World Port, one of the world’s largest package-handling facilities.
Air Cargo World recently ranked CVG the world’s top air-cargo airport, based on a composite score of customer service, performance and value.
Capital Markets
The scarcity of developable industrial sites and historic low vacancy rates continues to attract developers and investors. A lack of industrial investment opportunities and rapidly rising interest rates in H2 2022 hampered the year’s sale activity. Similar to the broader market, core cap rates increased approximately 150 bps from the low-4% range to the low-to-mid-5% range. CBRE projects interest rates will stabilize and we’ll see possible cap rate compression by the end of 2023.
Supply & Demand
After a record and unsustainable year for leasing in 2021, transaction volumes normalized, finishing at 7.2 million sq. ft., 10.6% above 2020. Over 5.2 million sq. ft. of positive net absorption drove vacancy rates to a record low of 2.1%. This was the seventh-lowest in North America despite over 4.2 million sq. ft. of construction completions. 3PLs account for 60% of total leasing because of this market’s central location and economic rental rates.
While over 8.4 million sq. ft. is under construction, 40% is pre-leased, one of the highest pre-leasing rates for big-box space in North America. Vacancy rates will remain at or near record lows and taking rents will rise in 2023, due to minimal speculative development and a projected decline in construction starts.
Figure 4: Share of 2022 Leasing by Occupier Type
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Figure 5: Lease Transaction Volume by Size Range
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Figure 6: 2022 Construction Completions vs. Overall Net Absorption by Size Range
Source: CBRE Research, 2022..
Figure 7: Direct Vacancy Rate by Size Range
Source: CBRE Research, 2022.
Figure 8: Under Construction & Percentage Preleased
Source: CBRE Research, 2022.
Figure 9: First Year Taking Rents (psf/yr)
Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Explore Big Box Insights by Market
More than 2.6 million people live within 50 miles of the market core, with a projected five-year growth rate of 2.1%.
Over 2.6 million people live within a 50-mile radius of the urban core, with a 2.3% expected five-year growth rate.
Nearly 30 million people—24% aged 18-34—live within 250 miles of downtown Louisville, with a 1% projected five-year growth rate.
