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Downtown Toledo’s office, apartment vacancy increased last year, reports say

Posted By: The Toledo Blade on February 12, 2024.  For more information, please click here to read the source article.

Downtown Toledo offices continued to empty out last year, while downtown’s typically low apartment vacancy rate ticked up slightly as well, according to new reports from the real estate firm Reichle Klein Group.

Downtown office vacancy stood at 33 percent at the end of the year, compared to 20 percent for the larger Toledo area, Reichle Klein found. Nationwide the office vacancy rate is about 18 percent, the report said, citing data from the firm CommercialEdge.

Apartment vacancy downtown, meanwhile, increased slightly from 3.5 percent at the end of 2022 to 6.4 percent now. That’s in contrast to the Toledo area overall, which saw a vacancy decline, to 3.8 percent, even as new apartment complexes are completed and offered to renters.

“This bears watching,” Harlan Reichle, president and chief executive of Reichle Klein, said of the downtown apartment trend. He said it’s too early to sound any alarms, and the downtown housing market may very well get back on track.

Offices

Office vacancy was highest, at about 43 percent, in downtown’s more upscale “Class A” buildings.

Various corporate users have continued to want less space following the pandemic, the report noted, while ProMedica’s financial challenges also were a “gut punch” for downtown as it has drastically cut back on its office needs.

“It’s not a good time to own a tower downtown,” said Sam Zyndorf, managing partner of the commercial real estate firm Signature Associates in Toledo. ​He said he expects the pendulum to swing back, at least slightly, as some companies decide they want workers in the office more often.

“ProMedica’s issues are what contributed, in particular, to that big second-half vacancy that came on the market,” Mr. Reichle said, referring to almost 107,000 square feet of office space that opened up in the latter half of 2023.

ProMedica spokesman Tausha Moore didn’t respond to questions about the company’s plans for three of the major buildings it has a presence in downtown, 333 and 300 N. Summit St., and 300 Madison Ave.

“Like most larger organizations, ProMedica regularly re-evaluates its office space needs,” she said. “Business changes and evolving trends like work-from-home have resulted in less office space needs for our organization over the past few years.”

Brandon Sehlhorst, the city’s economic development director, said downtown’s true office vacancy rate is actually much higher, when factoring in all the buildings that are fully vacant and no longer being actively marketed.

“It’s a national problem,” he said of empty office space, but one Toledo already has some experience solving, as it’s carried out several office and retail building conversions to housing over the years.

The suburban office scene doesn’t look quite as bleak as downtown, the report said, especially smaller buildings that user-buyers have continued to snatch up. Still, many office users there, like downtown, are looking to shrink their space as their leases come up.

Apartments

Overall, the apartment market in the Toledo area is healthy, the report said.

Rents have continued to tick up slightly, and now stand at an average of $967 per month, Reichle Klein said. Meanwhile, rising interest rates have not slowed new apartment construction, with new units under way increasing from 444 a year ago to 742 today. Perrysburg is the most active area for new apartments.

Mr. Reichle said it’s possible that some of the new suburban apartment complexes have pulled residents away from downtown, leading to higher vacancy there. Downtown’s Fort Industry Square also put about 100 new units on the market not long ago, Mr. Sehlhorst said, which may have contributed.

Still, any softening in downtown’s apartment market could be concerning for long-range plans there. Downtown Toledo’s recently refreshed master plan states that 911 units have been added since 2015, and it says the area could support between 1,000 and 1,300 more in the next decade, with about 500 of those already planned.

A top priority, the master plan says, should be increasing downtown’s housing supply. The Overmyer Lofts project, at 15 S. Ontario St., is now completed and will start leasing its 75 units in the coming weeks, while a coalition of developers and local agencies is also hoping to turn two old office buildings at Madison Avenue and Huron Street into 370 units in the next couple years.

“It’s definitely a metric that we’ll continue to watch, especially as we have a number of units coming online,” Mr. Sehlhorst said of the downtown vacancy.

Retail

Retail vacancy in the Toledo area stood at 7.7 percent, down from 8.4 percent a year ago, the report said.

That’s partly thanks to customers taking over empty retail spaces, mostly smaller ones, but also because of a smaller overall inventory after several former retail buildings were demolished, Reichle Klein said.

Some popular retail areas, such as along Secor Road near Central Avenue, are seeing mixed results, with some major stores, such as Whole Foods, closing, with others, like Kirin Asian Mart, deciding to open up in a large vacant space, Mr. Reichle said.

One trend that will likely increase overall vacancy in 2024 is Rite Aid locations that continue to shut down locally, related to the company’s ongoing bankruptcy, he said.

Industrial

The recently red-hot industrial real estate market — think large manufacturing and logistics spaces — “took a breather” in the second half of the year, the report said.

Still, there’s nothing to be worried about yet, Mr. Reichle said. Vacancy remained below 4 percent, the report said. Companies continue to build buildings for themselves, the report said, but spec buildings have been dropped or postponed amid higher interest rates and construction costs.

He noted the vacancy numbers will improve this year, after First Solar recently confirmed it had purchased the massive former Peloton building in Wood County.