HEARTLAND SNAPSHOT, MAY 2008

Columbus, Ohio Office Market

Office development in the Columbus central business district (CBD) and the outlying suburban markets continues at a steady pace. Activity is centered around a mix of traditional new office construction and redevelopment projects ranging in size from 10,000 to 150,000 square feet. More developers are converting obsolete warehouse buildings into contemporary office product.

Covington Capital, a developer based out of Santa Monica, California, is making a splash in the Columbus office market with the conversion of a former 100,000-square-foot warehouse located on Kenny Road in the 315 Research and Technology Corridor into Kenny Station, a high-tech office structure. The new office product here is expected to serve as a destination for high-tech users looking to feed off the synergy of the location.

Nationwide Realty Investors has also revealed its master plan for the redevelopment of the former Big Bear Warehouse property and surrounding area. Grandview Yard will be a multi-use development featuring 1.5 to 2 million square feet of office, retail, and residential condominiums. (See sidebar on previous page.)

Not all current projects are redevelopments, though. Daimler is nearing completion of two 140,000-square-foot, Class A office buildings located along State Route 315 just outside of downtown. The first building has already been occupied by Time Warner, while Daimler is currently pre-leasing the second building, which should be finished mid-summer.

All three of the projects mentioned are in the Grandview/Upper Arlington area, a current hot spot for development located just minutes away from the CBD. Tenants that vacated their downtown offices years ago for tax-abated suburban locations no longer have the motivation to stay in the suburbs. With the vitality of the Arena District — complemented by the new baseball park — and future development of Grandview Yard, this area has the formula to truly become an extension of the CBD. It will be interesting to see the development in this area become a foundation for future economic growth.

During the last 5 years, Columbus has significantly reduced its office vacancy — the CBD boasts its lowest vacancy rate in years at 12 percent, with the overall market averaging 16.5 percent — while also absorbing more than 1 million square feet of new product. A shining example of this is the 700,000-square-foot Lazarus Building, located downtown, which has largely been absorbed by an assortment of city and state government agencies.

Not all submarkets are experiencing such success; the suburban markets’ vacancy rates range from 14.5 to 23 percent, primarily because of product that has not been well maintained or is in isolated locations. Downtown Class A rental rates are currently hovering around $14 to $20 per square foot triple net, while suburban rates are in the $10 to $13.50 per square foot range.

The Columbus office market is experiencing a slow down to some extent, but it does not appear to be to the same degree as other areas of the country. The revitalization of downtown and the surrounding areas appears imminent.

— Matt Gregory is an  office and investment agent with Columbus, Ohio-based NAI Ohio Equities.

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