Written by: Cody Carey
As a Vice President in Multifamily Capital Markets, Cody works with a team of professionals who focus on multifamily properties across the country. With his expertise in the Greater Columbus Region, he works collaboratively with his team to lead multifamily investment sales and equity capital markets activity for clients. Keep reading to get Cody’s take on the current state of the Columbus Multifamily market.
How would you describe the current state of the multifamily housing market in Columbus?
Fundamentally strong. The multifamily housing market is a function of all the great work done by city leadership, city, local municipalities, third-party economic developers, etc. The strength of Columbus' multifamily housing market is rooted in strategic economic development and employment opportunities for its population. Columbus is also rapidly developing a phenomenal art, cultural, and entertainment scene critical to its residents' identity and retention.
From the supply side, Columbus has experienced a minor supply shock, with around 10% of its current inventory in lease-up or under construction. However, it hasn't impacted our continued rent growth or signaled a permanent shift in fundamentals. Properties take longer to lease up, and the impacts differ from submarket to submarket. Historically, Columbus has permanently leased faster than most other markets.
Throughout 2024, Columbus has consistently been recognized as a top ten rent growth market and hasn't seen the 'growth city reversal' present in many Sunbelt markets. New deep-pocketed institutional investment capital continues to enter the market; their main issue is finding enough property to acquire. Owners and developers know what they are sitting on, and we don't see the same capital stack distress other high-growth markets are. If there are capital stack concerns, owners and sponsors can typically find a suitable solution to hold property by delivering the significant economic development pipeline in Columbus and stabilizing the macroeconomic environment.
Are there any particular neighborhoods in Columbus experiencing significant growth or investment interest? Why?
Everyone wants to be as close to Intel as possible in our discussions because that's where everyone anticipates hypergrowth on the horizon. This typically includes Westerville, New Albany, Gahanna, Reynoldsburg, Johnstown, and Newark. If you drive out there, it's easy to understand why. That said, investors are in full acquisition mode for Columbus.
Developers typically pursue projects that can secure a tax reduction. Take Canal Winchester, for example. It's a workforce hub with the Rickenbacker Foreign Trade Zone nearby but with limited new housing. When the City of Columbus first enacted the new Southeast Community Reinvestment Area, new housing projects were developed. Since 2021, 11 properties and 2,210 units have been delivered or are currently under construction. Prior to the CRA, only 5 properties and 858 units were developed between 2015 and 2020. Now that Columbus has enacted a city-wide CRA, developers will likely target the fringes of Columbus City limits that border favorable demographic neighborhoods, taking advantage of Columbus' more straightforward zoning process and development incentives.
Grandview Heights and its fringe receive a lot of attention when considering urban neighborhoods. Still, investment capital is competing for a minimal amount of scale property, and developers are typically faced with high land pricing.
How does Columbus' population growth, including migration trends, impact the multifamily housing market?
Columbus' population growth and employment growth are the main drivers of the multifamily housing market. Columbus has a somewhat "youthful" housing stock compared to markets like Cleveland, Pittsburgh, and Cincinnati, and we are building and filling units in a rather rhythmic cadence. In 2020, Columbus was recognized as one of fourteen cities that added more than 100,000 residents over the ten-year census period and the only one in the Midwest to be on that list. According to a study by the Bank of America, Columbus was the fastest-growing city for the second half of 2023. If we can't build enough supply to maintain organic affordability, we will continue to experience elevated rent growth and compressed cap rate expectations. The question that everyone's asking is how big it becomes. Mind you, we haven't delivered any of the multi-billion-dollar projects just yet.
Have any significant changes in zoning or regulations in Columbus impacted multifamily development?
Significant changes have occurred in the City of Columbus and the State of Ohio regarding housing legislation and zoning. Statewide, Ohio is amid an economic development renaissance and is at the forefront of innovation in manufacturing, biotechnology, medical research, data center infrastructure, and much more. Our housing market has been tasked to adapt efficiently to meet the demand of a rapidly growing Central Ohio region and meet the demand.
In September 2022, the passing of House Bill 430 proclaimed that no political subdivision, such as local municipalities or townships, can impose rent control or stabilization. In the investment market, supply creators must have the ability to adapt to market forces and deliver quality housing without creating a ceiling on asset valuations. Housing costs only rise rapidly when the supply and demand equation is imbalanced in Columbus.
Another critical piece of legislation passed in December 2023 was passing a city-wide Community Reinvestment Area. The legislation is crucial because it makes any multifamily development project within the city limits of Columbus eligible for a 15-year 100% tax abatement, subject to specific affordability requirements. This piece of legislation reflects Columbus' goal of maintaining organic affordability by delivering adequate supply, and it is essential because Columbus MSA is one of the most affordable markets in the Midwest, which negatively impacts project feasibility in a high-rate and high-cost construction environment.
Since 2015, when reviewing Midwestern MSAs with a population of over 2 million, Columbus has built the third most units only behind Minneapolis and Chicago, delivering them at the most affordable market rents with a highly competitive median household income. The unprecedented raising of the fed funds rate from .05% in March 2022 to 5.30% by August 2023 and the rapid rise in construction costs due to pandemic-related disruptions have made it difficult for developers to make the math work. The 15-year tax abatement provides significant operating expense savings and provides leeway in the necessary market rents to make development projects feasible.
Lastly, the City of Columbus recently modernized its zoning code for the first time in more than 70 years. Title 34, also known as the 2024 Zoning Code, has been approved by Columbus City Council and took effect in October 2024. The main goal of updating the zoning code is to address the accumulated housing shortage and prepare for the anticipated growth in demand from all the major economic development projects rooted in Central Ohio. Zone In Columbus resulted in a major call for housing density and a vision for strategic urban centers. For example, High Street in the Short North, now by right, allows for 12 stories with the potential for 16 stories, no setbacks, and fewer parking requirements. 5th & King Avenue, leading into the Grandview Heights and Upper Arlington area, have been identified as Urban Town Centers by right, calling for 5-7 stories, no setbacks, and minimum parking requirements. Many other corridors have been similarly identified. It's an exciting piece of legislation and prepares Columbus for its next maturation phase.
Are there any new infrastructure projects or public investments in Columbus that have made certain areas more attractive for multifamily investment?
Absolutely. Sponsors, developers, and equity unanimously desire to purchase land or existing assets in Northeast Columbus that are as close to the Intel Chip Fab as possible. Intel's $20b investment and continued commitment to the region is transformational. Capital is willing to underwrite the most aggressively in this area in an attempt to plant its flag in Columbus for the long run.
Intel is a huge reason for the attention drawn to Central Ohio, but there is so much more going on here locally than that. Amgen Biotech, OhioHealth, The Ohio State Wexner Medical Center, Honda & LG, AWS, Google, Meta, Microsoft, the airport expansion. The list goes on.
Each submarket has its unique fundamentals and dynamics, and interest varies depending on investment strategy. The Colliers Midwestern Multifamily Advisory Group regularly hosts discussions with regional investment groups, and there typically isn't a conversation without Columbus as a focal point.
What is your long-term outlook for multifamily real estate in Columbus over the next 5-10 years?
Columbus will be one of the hottest multifamily markets in the country over the next 5, 10, 20 years. There's no doubt about that in my mind. As mentioned earlier, the question is how big does it get? There's a lot of speculation, most of it fueled with optimism. Right now, there's a minor supply shock. Still, we're tracking a healthy drawback in expected deliveries through 2026 and 2027 due to the current macroeconomic environment that will likely exert pressures that will create a very competitive leasing environment. Those are the years we're expected to experience the delivery of many multi-billion-dollar projects.
We're also experiencing a much deeper pool of capital targeting the Central Ohio region and the Midwest. We're seeing some migration trends from the pandemic start to reverse, with speculation of extreme weather events and cost of living frequently cited as drawing factors. With the significant uptick in eyes on Columbus, the more competitive landscape will exert downward pressures on cap rates and begin to converge asset valuations with other growth markets.