Written by: Collin Fitzgerald
Collin specializes in research capabilities, providing support for the Colliers Columbus Office, Industrial and Retail groups. He is responsible for executing data reports, maintaining a commercial property database, reporting quarterly trends, performing data analysis and utilizing statistical information to predict future behavior in the market. Keep reading for Collin's take on market trends in the Columbus office and industrial sectors.
Industrial Market Update
Vacancy in Columbus continues to outpace the national vacancy with new supply outpacing demand over the past four consecutive quarters. Vacancy in Columbus jumped 334 basis points year over year, compared to a 180 basis-point increase at the national level.
Quarter in Review
The Columbus industrial market returned to positive absorption after having negative absorption in Q1 2024. Columbus continues to see socioeconomic uncertainty, leading to the slowing of the industrial boom that prevailed during and just after the pandemic, now reverting to numbers that more closely align with pre-pandemic trends. Build-to-suits now take hold as the leading supplier of positive absorption as debt and capital markets continue negatively impacting speculative construction. Speculative construction activity continues to decelerate, with completions at almost half of what was produced in Q2 2023. Under-construction activity has continued to hover around 10 million square feet the past few quarters, with over 75% of this being built-to-suits. Another factor contributing to the slow speculative construction starts is the softening tenant demand.
Although rent growth is slowing as vacancies rise, annual gains remain above the long-term average. Columbus' more affordable rents have made it easier for property owners to continue increasing rates in recent months, even as market conditions soften. There has also been an increase in sublease space, giving tenants the opportunity for shorter-term leases with more flexibility and lower rents.
Forecast
We expect to continue to see the Columbus industrial market revert towards pre-pandemic numbers as vacancy rises and absorption numbers continue to slow. Construction activity has decreased as many speculative projects have not been pre-leased. This, along with capital market uncertainty, has developers halting breaking ground on planned speculative projects. At the same time, we continue to see build-to-suits as the driving force in construction. This trend reflects a decreased demand environment, as tenants exhibit greater caution amid economic uncertainties compared to the previous two years. As a result, we will continue to see these trends throughout the year until there’s more financial certainty and the industrial market falls back into balance.
Absorption & Leasing
The Columbus industrial market had 2.1 million square feet of positive absorption after a quarter of 1.2 million square feet of negative absorption, the first negative absorption recorded since the end of 2019. Most of the positive absorption this quarter can be attributed to Maersk backfilling the TJ Maxx sublease (1.1 million square feet) as well as the DHL build-to-suit (755,160 square feet) and the ODW build-to-suit ( 929,142 square feet). Besides those significant build-to-suits and sublease backfillings, only three tenants signed new leases of over 200,000 square feet, totaling 1.1 million square feet of occupied space this quarter. In comparison, three tenants over 200,000 square feet vacated space this quarter, totaling a negative 1.8 million square feet. This has been a significant shift from past quarters, where new leases in brand-new speculative construction buildings led to positive absorption. Some significant move-outs this quarter were Honeywell, which moved out of 845,280 square feet, and Zulily, which vacated 737,471 square feet.
Vacancy & Market Rents
Vacancy in Columbus continues to rise faster than the national vacancy in early 2024. Supply outpaced demand over the past four consecutive quarters, and vacancy jumped 334 basis points year over year in Columbus to 7.03%, compared to a 180-basis-point increase at the national level. This marks the highest vacancy rate recorded since 2015, at 6.4%. One of the most significant contributors to the rise in vacancy is the completed speculative projects delivered without a tenant, with over 50 percent of speculative deliveries being vacant for over a year. The remaining leased deliveries comprise build-to-suit buildings. Given the challenging conditions in the debt and capital markets sectors for speculative construction, this trend is anticipated to continue, with a heightened focus on build-to-suit projects. Direct asking rates showed a weighted rent of $7.34, reflecting a increase compared to the previous quarter.
Sales Activity
Sales volume totaled $190 million in the second quarter, however, $94 million ($78.75 PSF) of the reported volume was due to the sale of 521 Exchange Way, a 1.1-million-square-foot building that was purchased by W.P. Carey Inc. and sold by VanTrust. Another notable sale was 6200 Winchester Blvd, a 150,000-square-foot building purchased by STAG Industrial from Tenby Partners for $20,250,000 ($135 PSF). Sales volume and market price increased in the second quarter. The price per square foot also increased to $96.46 making it the highest price per square foot since Q2 2022.
Check out the full Q2 2024 Industrial Trends report here!
Office Market Update
The Columbus office market experienced negative absorption for the second consecutive quarter, resulting in a 140-basis point jump in overall vacancy to 18.84%. Urban submarkets were the primary contributors to the negative absorption, as the CBD accounted for 172,689 square feet of negative absorption, followed by the Arlington/Grandview submarket at 18,120 square feet. These figures continue to be impacted by smaller tenants in the market where the majority of movement is. Average asking rates decreased $0.46 during the second quarter to $20.81 PSF. We expect rents will rise moderately toward year's end, with more speculative office space being delivered in Columbus. Additionally, concessions and generous tenant improvement allowances have remained critical to finalizing deals due to the competitive market. The increasing desirability of sublease spaces is becoming prevalent, as they offer tenants shorter-term leases with greater flexibility and lower rents. Elevated vacancy and competition from discounted sublease space will continue to pressure rents and landlords' ability to offer incentives. Over the past three quarters, over 100,000 square feet of sublease space was leased. The trend of sublease space being more desirable is becoming prevalent in Columbus as tenants are beginning to prefer shorter-term leases due to economic uncertainty as they reassess their office space needs and await clearer economic outcomes. As many loans come due this year, there is potential for some assets to transition into receivership, particularly affecting Class B and less desirable Class A buildings with low occupancy rates. While the national trend of office building conversions continues as investors look to repurpose under-utilized assets to address and capitalize upon housing shortages, Columbus' conversion activity has been limited to a few specific properties.
Absorption & Leasing
The largest lease signed this quarter was signed by Bostik for 68,981 square feet in the Dublin submarket at 5200 Blazer Parkway. Leasing activity is notably concentrated in high-quality and newly constructed buildings, which is a trend that provides some optimism for the future. Many of the new office buildings that are being developed are in the downtown and suburban areas with more class A buildings. New buildings in areas like Arlington/Grandview and Dublin are preleased, indicating sustained demand for premium office space. Over 250,000 square feet of office space was signed this quarter, many with Q3 2024 and Q1 2025 commencement dates. This shows that there is still significant leasing activity within the market.
Vacancy & Market Rents
The office market in Columbus, Ohio, is experiencing several dynamic changes as of mid-2024. Despite ongoing occupancy challenges in the office sector, vacancies in Columbus will likely continue to rise gradually compared to the national market. The construction pipeline is at the lowest level in over a decade, and few new projects are breaking ground amid elevated interest rates and uncertainty in the future of office demand. The overall vacancy rate in Columbus is 18.84%, with significant variations across different submarkets. Notably, over 30 percent of anticipated deliveries in 2024 are already preleased. As construction is completed, the preleased space will create a small wave of positive absorption, with most tenants moving out of their spaces and expanding into larger suites than their previous spaces. Current direct asking rates showed a weighted rent of
$20.81 PSF.
Sales Activity
Sales volume totaled $68 million in the second quarter, down $2 million from last quarter, with $35 million of the reported total coming from investment sales. The largest property sold this quarter was 8050 E Main St, comprised of 62,802 square feet, sold by The Daimler Group Inc. The property traded at $22.75 million and was purchased by Hammes Partners. This quarter, we saw pricing similar to that of the second half of 2023, where pricing spiked in Q4 2023 to $105.80 per square foot and has now spiked to $145.36 per square foot in Q2 2024.
Check out the full Q2 2024 Office Trends report here!
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