Greater Columbus, Ohio, thrives on a diverse mix of businesses including government, insurance, finance, distribution, retail and manufacturing. Economists look to these businesses to read employment trends for indications as to how the local economy is doing and to predict recovery for 2003 — albeit a weak one.

In 2001, net absorption in Columbus was negative in both the office and the industrial markets — bringing speculative construction to a virtual standstill. Supply outweighed demand in the retail market while construction continued in the multifamily housing market. In 2002, commercial real estate began to improve and speculative construction is slowly starting in the office and industrial markets. However, rents are flat across all property types. Local sources respond with varying degrees of enthusiasm when probed about predictions for 2003.

Office

Downtown Development Director Bob McLaughlin predicts that Columbus will become a 24-hour city by its bicentennial in 2012. The city has committed $100 million over the next 10 years, through the Downtown Strategic Plan, to improve five critical areas: housing, mixed-use neighborhoods, the riverfront area, parking and transportation, and the office market.

Class A office space in downtown Columbus ended 2002 with a 17.2 percent vacancy rate iand 78,700 square feet of net absorption. Class B space also did not fare well. In fact, Class B vacancy rates climbed steadily from just under 10 percent in the first quarter of 2002 to 15.4 percent at year’s end resulting in almost 190,000 square feet of negative net absorption in 2002.

Sublease space hit the suburban office market in waves during 2002. In June, almost 450,000 square feet of sublease space was available in Class A buildings. That number dropped by more than 110,000 square feet by October as subleases were executed or landlords absorbed former tenants spaces. However, by December, sublease space on the market reached a new high of more than 470,000 square feet. The year-end Class A vacancy rate was 17.3 percent — but sublease space swells that percentage to 20.3 percent. Companies appear to be reducing headcounts and space obligations in efforts to balance the books.

With 95 percent occupancy in its four existing office buildings in Easton, Duke recently began construction on Easton Way Three, a 130,675-square-foot office property that is slated for completion in October. In Polaris, Opus North and Jerome Solove Development have teamed up to plan Altair, a 165-acre, mixed-use office/commercial campus at Cleveland Avenue and Africa Road.

Also in Polaris, The Daimler Group expects to begin the sister building to its 135,000-square-foot Westar building on Polaris Parkway sometime in 2003. “As long as you have product that has been proven in the marketplace, you’ll see some speculative development in 2003,” says Robert White Sr., CEO with The Daimler Group.

Retail

Columbus has recently witnessed a high volume of retail development. For example, the Easton, Polaris and Tuttle Crossing shopping centers, which have been developed during the past 2 to 3 years, have dominated the fashion-oriented retail markets and will continue to do so into the foreseeable future.

In addition, new community-sized, grocery-anchored shopping centers in well positioned growth areas will continue to have solid occupancy and inflating rents. These successful centers will be found around the outer belt in suburbs such as Westerville, Reynoldsburg, Gahanna, Polaris and Hilliard. Infill second and third tier retail developments will suffer as many are no longer attractive to today’s merchant or consumer.

Multifamily

The multifamily vacancy rate in Columbus is the highest it has been in 20 years.

New construction is a factor in high vacancies and, although there are more occupied apartments this year than last, new buildings increase the rate by between 4 to 8 percent in some submarkets. Low interest rates are also affecting vacancy rates, as renters are able to become first time homeowners earlier than in the past.

With a multifamily vacancy rate hovering around 10 percent in Columbus, the saving grace is that the vacancies are evenly distributed around the geographic area. This much vacancy would be catastrophic if it were focused in a few areas. However, in older properties at the bottom end of the market, the vacancy is closer to 12 to 14 percent. At the top of the market, newly constructed units have yet to lease up.

Rental rates are flat across the market but, historically, rents have always been flat. Even in times of low vacancy, Columbus rental rates rise less than 2 percent per year. An indication of a healthy market, the area supports a wide range of rental rates. For example, a two-bedroom unit can be leased from $400 to $2,000.

“Today is the best time to invest in multifamily property,” says Garrett Scanlon, head of investment sales with Don M. Casto. “Interest rates are lower than they have been in 25 years, and the supply of new apartments will be limited in the future due to the difficulty of obtaining zoning for apartments.”
Casto Communities has two apartment developments currently under construction. The 264-unit Schirm Farms in Canal Winchester will be completed by July 2003. The first phase of Troy Farms, a 176-unit apartment complex in Delaware, will be completed by June 1, 2003. All 21 buildings in the $10 million complex will be completed by February 2004.

The Downtown Strategic Plan indicates a strong need for multifamily development in the downtown market. As a result, more than 1,000 apartment and condominium units are under construction or starting construction soon. All of these units are at the high end of the market. Strong demand remains for more unique, true loft space and especially for units at a lower price point.

Industrial

The clearest indication that the Columbus real estate market is improving is in the industrial market. Industrial vacancies have fallen steadily since a high of 11.8 percent in the first quarter 2002 to 9.9 percent at the end of the fourth quarter of 2002. The bulk industrial market ended the year with more than 1.7 million square feet of net absorption — a far cry from the negative 2.6 million square feet experienced in 2001. During 2002, more than 8.8 million square feet of gross leasing activity occurred.

Nationwide, there is a trend toward larger bulk industrial buildings. According to Jeff Palmquist, local industrial specialist with Duke Realty, buildings are evolving to meet tenants’ needs. Companies are rethinking logistics models and cutting the number of distribution centers they operate in favor of fewer but larger facilities. As a result, the location of the remaining distribution centers is crucial.

According to Brian Marsh, first vice president with ProLogis, companies have been requiring larger buildings (300,000 square feet and up), and he expects the trend to continue in Columbus. He also predicts that good Class A demand will lead to more construction in 2003 — with build-to-suits in the first half of the year leading to speculative construction in the second half of 2003. With that prediction in mind, ProLogis has a 749,952-square-foot, tax-abated, pad-ready site that could be completed within 4 months.

Most sources agree that industrial activity will take place in the city’s southeastern submarket of Columbus, such as in Obetz, Rickenbacker and Groveport. The area is an industrial hot spot because multiple municipalities are involved in development; infrastructure is already in place; Rickenbacker’s Foreign Trade Zone offers tax breaks; and area communities welcome distribution in the area.

Duke has two 400,000-square-foot, second-generation spaces in the southeastern submarket that will become available in the second quarter of 2003. The company also has 126 acres in Groveport that are slated for development, as well as plans for an 850,000-square-foot speculative building that will be built in phases when the second-generation space is leased. Additionally, Bill Baumgardner, vice president of leasing and sales with Pizzuti Development, has little space left at Creekside IV, located in Obetz, and will begin construction on the 366,000-square-foot Creekside V when that space is leased.

Catherine Erney is the manager of research and marketing for Minneapolis-based NAI Welsh. Robin Lorms, principal of Columbus, Ohio-based Integra Realty Services, wrote the retail section. Ken Danter, president of Columbus, Ohio-based The Danter Company contributed to the multifamily section.

*Office and industrial vacancy and absorption statistics are from NAI Welsh research.


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