HEARTLAND SNAPSHOT, DECEMBER 2008

Columbus, Ohio Multifamily Market

During 2008, multifamily development in the Columbus market has slowed significantly. Many of the new units coming online this year have been condominium conversions to rental units, as the condominium market has all but dried up. The development slowdown can be attributed to the overall national economy, in conjunction with increasing construction costs and the single-family home meltdown. 

Although multifamily development has declined in Columbus, one of the few notable multifamily developments in the market was recently completed at the site of the former Seneca Hotel. Located in the Discovery District of downtown Columbus, the 10-story hotel has been rehabbed and converted into 76 luxury apartment units. Philadelphia-based Campus Apartments completed the redevelopment of the project, which includes a mix of studio, one- and two-bedroom units. Like Campus Apartments, many other student housing developers are trying to tap into the Columbus market because of its substantial student population.

 Other new developments in the Columbus market include Winchester Park Apartments, a 344-unit complex located on the southeast side of Columbus, and the Gahanna Creekside Condominiums. Several condominium and apartment developments are planned for 2009 and 2010, but the current economic crisis will play heavily into which future developments move forward.

In the midst of this economic uncertainty, downtown Columbus is continuing to see new housing developments. This is due in part to the city’s focus on housing in the downtown urban core. By offering tax abatements and other incentives, more people are relocating into the downtown area. With a plethora of commercial and residential projects underway, the Ohio State University market continues to be a small city of cranes. 

Additionally, due to the opening of the Rickenbacker International Air Base transportation intermodal, the southeast side of Columbus is poised for multifamily development. This intermodal terminal is used for the interchange of shipping containers between trains and trucks. Rickenbacker encompasses 5,000 acres, and continues to explode with growth and new job opportunities.

After several years of focusing on condominium development, Village Communities has repositioned itself in the market. Village Communities recently formed Metro Development, which is currently overseeing construction of the Winchester Park Apartments, and has plans to take on more projects in the central Ohio area.

While many of the recent developments are Class A and luxury condo projects, the student housing market continues to be a highly desired asset. Also of note are the far northwest and far north central submarkets, as the majority of the market’s growth continues to take place in these areas. Major retailers continue to enter these areas, and with continued urban sprawl, these quadrants of Columbus are expected to continue to grow.

With renters coming back to the rental market due to the overall economy most property owners have seen vacancy decrease, regardless of a property’s class or age.  This increase in renters offers landlords the ability to push rents higher as vacancy dwindles and concessions disappear. Concessions are all but gone and rents continue to increase across Class A and B apartment properties. The average rental rate for the Columbus market is $685 per month. Much like the rest of the country, vacancy rates in Columbus continue to drop, with fourth quarter vacancy rates averaging 6.5 percent.

The Columbus and central Ohio multifamily market will continue to see vacancy decrease and rents increase, as multifamily properties will remain the favored asset class by both lenders and investors. New development of apartments and condominiums should pick up in 2009 and 2010, as the credit markets and economy hopefully return to some form of normalcy. 

As credit has become harder and more expensive to obtain, multifamily sales volume has been on the decline this year. It is anticipated that transaction volume will increase in 2009 with a new United States President in place and better overall economic conditions. Cap rates have increased throughout the year, but should top out and start declining towards the end of 2009, as vacancy rates will still be low and rents will continue to push higher. 

— Scott J. Paull is a multifamily investment sales advisor in the Columbus, Ohio, office of NAI Ohio Equities.

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