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 decreased slightly in the third quarter, declining to 7.01%. Supply has continued to outpace demand over the past four quarters, resulting in a slowdown in construction activity, which in turn will help balance the supply and demand equation.
Quarter in Review
The Columbus industrial market had positive net absorption again this quarter after recovering from negative net absorption at the start of the year. Although the positive net absorption this quarter reflects a recovery in tenant demand, this year is on track to be the lowest absorption in the past five years. As Columbus continues to be impacted by national socioeconomic uncertainty, leading to the slowing of the industrial boom that prevailed during and just after the pandemic, now reverting to vacancy and absorption numbers that more closely align with pre-pandemic trends. Build-to-suits take hold as the leading supplier of positive absorption as debt and capital markets continue negatively impacting speculative construction. Overall construction activity continues to decelerate, with only 200,000 square feet of speculative space starting this quarter, leaving the remaining 80% of product under construction as build-to-suit. Columbus’ industrial market continues to demonstrate resilience despite broader economic headwinds. The market has experienced a notable rise in vacancy rates, climbing to 7.01% from 4.38% a year before, as well as a slight decline in rental rates from $7.34 in Q2. Columbus' more affordable rents have made it easier for property owners' rental rates to remain stable, with only slight growth in some areas, as the market adjusts to increased supply. Available sublease space continues to decline due to tenants gravitating toward the opportunity for shorter-term leases with more flexibility and lower rents.
Forecast
With vacancy holding around 7% in the third quarter, developers have responded by continuing to slow speculative construction and focusing on build-to-suit projects, which should help stabilize the market. Strong demand from logistics, e-commerce and manufacturing sectors will continue to drive leasing activity, particularly for modern bulk buildings near major transportation routes. As Columbus remains a key logistics hub, its geographic advantages will keep it attractive to national and regional players. Rental rates are still expected to grow modestly but slowed by the increased supply coming online. Overall, the outlook for Columbus' industrial market remains positive, supported by continued demand and a more measured approach to new development..
Absorption & Leasing
The Columbus industrial market had 631,901 square feet of positive absorption after a quarter of 2.1 million square feet of positive absorption. This quarter's positive absorption can be attributed to Vista Packaging leasing 1120 Morrison Road. The second largest contributor was at 10300 Schuster Way, where Omega Morgan occupied. Besides those significant leases, only two other new leases were signed over 200,000 square feet, the largest being a confidential tenant leasing 611,750 square feet at 1050 Gateway Park Drive in the Madison submarket, who will occupy their space next quarter. In comparison, three tenants over 100,000 square feet vacated space this quarter. This has been a significant shift from past quarters, where new leases in new speculative construction buildings led to positive absorption. Significant move-outs this quarter were MSC, who moved out of 468,000 square feet at 1568 Georgesville Road, and West Side Transportation, which vacated 113,400 square feet at 444 McCormick Boulevard.
Vacancy & Market Rents
Despite vacancy in Columbus slightly decreasing in the third quarter, year-over-year vacancy jumped 263 basis points to 7.01%. One of the most significant contributors to the rise in vacancy year-over-year is the completed speculative projects delivered without a tenant. Of note, over 50 percent of speculative deliveries have been vacant for over a year. 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 $7.03, reflecting a slight decrease compared to the previous quarter.
Sales Activity
Sales activity in the Columbus industrial market has decreased in the past few quarters. Despite fluctuations in vacancy rates, the market has seen significant investment in well-located, modern industrial facilities, particularly those near key transport hubs. Sales volume totaled $84 million in the third quarter. However, half of this quarter's sales volume can be attributed to two sales. One is the sale of 3500 Southwest Boulevard, a 527,127-square-foot building purchased by American Nitrile for $21 million
($40.75 PSF). The other notable sale was 9360 Innovation Campus Way, a 130,100-square-foot building bought by a Confidential buyer from Tenby Partners for $21 million ($168.33 PSF).
Check out the full Q3 2024 Industrial Trends report here!
Office Market Update
As of mid-2024, the office market in Columbus, Ohio, is navigating a complex landscape shaped by high vacancy rates and shifting tenant demands. The Columbus office market experienced negative absorption for the third consecutive quarter, resulting in a 45-basis-point jump in overall vacancy to 19.29%. Suburban submarkets were the primary contributors to the negative absorption, with Dublin accounting for 47,161 square feet of negative absorption, followed by the Westerville submarket with 31,649 square feet. These figures continue to be impacted by smaller tenants in the market, where most of the movement is occurring. Average asking rates increased $1.86 during the third quarter to $21.87 PSF. We expect rents to rise moderately in the next few quarters, with more speculative office space to be delivered in Columbus by mid-year 2025. Demand for premium, modern office space remains relatively strong, particularly in suburban areas and surrounding neighborhoods like Dublin and Polaris. Additionally, concessions and generous tenant improvement allowances have remained critical to finalizing deals in the competitive market. One trend seen nationally, as well as in Columbus, is shrinking average lease sizes on new deals as tenants relocate and consolidate. This trend continues to weigh on absorption trends. The impact of relocations and consolidations will persist over the near term as leases signed before 2020 approach expiration, and tenants begin signing smaller 1–2-year renewals. Although the office sector continues to face occupancy challenges, Columbus is expected to see a gradual increase in vacancy rates, slower than the national trend. With construction activity at its lowest point in over a decade and no new projects starting due to high interest rates and uncertain office demand, the supply of new properties will remain limited, helping to maintain relatively stable market conditions in the foreseeable future.
Absorption & Leasing
The largest lease signed this quarter was signed by Ohio Transmission for 26,336 square feet in the Easton submarket at 3948 Townsfair Way. 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 being developed are Class A buildings located in the CBD and Upper Arlington/Grandview submarkets. New buildings in areas such as Arlington/Grandview and Dublin are preleased, indicating sustained demand for premium office space. Over 200,000 square feet of office space was signed this quarter, many with Q4 2024 and Q1 2025 commencement dates. This demonstrates that there is still healthy leasing activity within the market.
Vacancy & Market Rents
The office market in Columbus 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, due to the strength and diversity of the Columbus economy as well as its projected growth. 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 future office demand. The overall vacancy rate in Columbus is 19.29%, 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. Current direct asking rates showed a weighted rent of $21.87 PSF..
Sales Activity
Sales volume totaled $28.4 million in the third quarter, down $40 million from the last quarter. This is the lowest sales volume in the past five years. The largest sale this quarter was 5000 Horizons Drive, comprised of 12,356 square feet, sold by Davis Commercial Realty. The property traded at $2.6 million and was purchased by TCP Asset Management. This quarter, pricing remained steady at $98 per square foot.
Check out the full Q3 2024 Office Trends report here!
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