HEARTLAND SNAPSHOT, JANUARY 2005

Columbus, Ohio, Industrial Market

Curt Berlin, SIOR, NAI Ohio Equities

In the Columbus industrial market, there is continued development of large bulk warehouses in the Rickenbacker area, according to Curt Berlin of Columbus-based NAI Ohio Equities. “The size of these speculative buildings range from 372,000 square feet to 667,000 square feet, and I see this trend continuing and believe there won’t be any speculative projects built that are less than 350,000 square feet or more than 1 million square feet,” Berlin says.

The most significant industrial project that will take place in Columbus is the planned development of 1,000 acres at Rickenbacker International Airport. “This, coupled with Norfolk Southern Corporation’s planned 300 acre intermodal yard near this 1,000 acres, will spur development in this area for years to come,” Berlin says. The Columbus Regional Airport Authority has asked 29 developers to make submissions of qualifications to develop the site. Many of these developers are not currently in the market, which could create more competition if they are chosen. A few other planned developments include Prologis’ planned purchase of more than 250 acres in Etna for an industrial park; Duke Realty Corp.’s plan to purchase 116 acres at the most visible location in the Rickenbacker area for an industrial park; Pizzuti’s recent partnership with USAA Real Estate Company to continue development of the remaining 280 acres of land at Creekside Industrial Park in Obetz, Ohio; Lauth Property Group’s plan to develop 144 acres of industrial land in the Rickenbacker area; and Kirco Development’s purchase of 230 acres for a planned industrial park in the Rickenbacker area.

“The leasing market should remain competitive and give tenants many viable options,” Berlin says. “Regardless, Columbus is seeing new entrance into the market by Lauth Property Group and Kirco. With established developers like Duke, Pizzuti and Prologis, competition for deals should continue.”

The primary reasons that the majority of development is taking place in Rickenbacker are the availability of land with the foreign trade zone and enterprise zone status with real estate tax abatement. Proximity to the airport and accessibility are important but not near the driving force of these other factors. The villages of Groveport and Obetz have land located in the foreign trade zone and enterprise zone with 15-year, 100 percent real estate tax abatement available. The city of Columbus has land located in the foreign trade zone and enterprise zone and is offering up to 100 percent, 10-year real estate tax abatement. “If land does not have any combination of these, it is at a competitive disadvantage and likely will not be looked at for development,” Berlin says.

Kirco Development and Lauth Property Group are some of the new developers to the Columbus industrial market. “I expect more after the intermodal yard is built,” Berlin says.

There is not a certain type of tenant, such as high-tech or manufacturing, that Columbus’ industrial properties are trying to attract; instead, property owners are attracting users based on their building’s age. “The newer industrial buildings with all of the incentives are trying to attract the large distribution/warehousing users, while second generation space owners are looking to subdivide their buildings for smaller users and maximize rents,” Berlin says. “The leasing environment will remain competitive for landlords and favorable for tenants. In spite of this, there should be an increase in lease rates for new buildings due to higher steel prices and developers’ unwillingness to accept current lease rates, which would provide unacceptable returns.”

The overall market vacancy rate is 13.7 percent. “The vacancy rate has reached its peak and will start to fall at a steady pace during the next few years,” Berlin says. “The vacancy rate is skewed by the recent availability of the former Eddie Bauer/Speigel facility, which put 2.9 million square feet on the market — the largest block of space available in central Ohio.”

Within the market, there are 29 buildings totaling more than 8.2 million square feet that are more than 20 years old and have some sort of obsolescence and/or offer no incentives. Removing these from the mix, the vacancy rate would be 8.8 percent. Second- and third-generation buildings will continue to be at a competitive disadvantage and remain at higher vacancy rates.

“People should continue to keep an eye on the Rickenbacker area due to the planned intermodal facility and its impact on the surrounding area,” Berlin says. “Also keep an eye on Etna to the east of Columbus and West Jefferson to the west due to the availability of less expensive land and proximity to Interstate 70. Land in these areas also has all the necessary incentives to be competitive with the Rickenbacker area. Keep an eye on the southwest submarket (Grove City) as the 15-year, 100 percent real estate tax abatement nears an end on the first buildings completed there. How will landlords and tenants deal with this issue? Will tenants leave for new tax abated buildings, will landlords drop their lease rates, or some combination thereof? The other remote possibility is the municipality stepping in and extending the abatement at a reduced amount.”

©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.