Q2 2023 INDUSTRIAL & OFFICE MARKET UPDATE
Written by: Brooke Ferman
As a Research Analyst, Brooke specializes in research capabilities, providing support for the Colliers Columbus Office, Industrial and Retail groups. She 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. She also assists the marketing and research director on special projects and corporate initiatives. Keep reading for Brooke's take on market trends in the Columbus office and industrial sectors.
Industrial Market Update
The Columbus industrial market continues trending positively, recording 4,478,276 square feet of net absorption this quarter. Vacancy rates decreased to 3.69 percent and overall asking rates rose to $7.05 NNN. Overall construction activity has reduced this quarter with only four projects totaling 755,652 SF coming out of the ground. There were 13 completions with over 3.8 million square feet delivered this quarter with 11.2 million square feet currently underway. The second half of 2023 can expect new speculative construction to slow with a stronger focus on build-to-suit projects.
The vacancy rate this quarter decreased to 3.69 percent. The submarkets with the highest vacancy rates are largely due to construction completions that are not yet leased. For example, the Madison submarket has the highest vacancy rate at 12.85 percent due in part to 200 Park West Drive (712K SF) just delivering but is not leased. The Pickaway submarket had the largest drop in vacancies with 4229 Raymond Avenue (1.02M SF) leased to Geodis. The CBD and Union submarkets had the lowest vacancy rates both under one percent.
Net absorption is a reflective indicator of market activity because it represents tenants moving in and out of space. When a tenant moves into the space, the square feet in the area is positively absorbed, but when a tenant moves out of the space it is negatively absorbed. This quarter, the net absorption was over 4.4 million square feet. As we’ve seen thus far, we expect the last two quarters to continue positive absorption given the activity we’re seeing in the market.
With nearly four million square feet of construction completed and over 700,000 square feet breaking ground, overall construction decreased by 23 percent. The majority of submarkets are tracking well over 700,000 square feet under construction. The Licking County submarket continues to lead construction with four projects underway, all modern bulk buildings. Two of these projects are in New Albany near the Intel campus. The majority of the overall construction are speculative projects, comprising 66 percent. We anticipate this trend to continue to slow and shift to more build to suit projects as the debt and capital markets continue to remain difficult for speculative construction.
The market saw 3.8 million square feet of completions this quarter. The Licking submarket experienced the most growth adding two buildings in the Silicon Heartland Innovation Park and one in New Albany (New Albany Commerce Center I) - totaling over 1.1 million square feet. The Southeast submarket also had over one million square feet delivered this quarter adding two buildings to the market. This has been the most active quarter for deliveries in the last three years. The East, Fairfield, Madison, Delaware, Southwest and Union submarkets each came in with one completion.
While leasing activity was the most active in the second quarter, the sales volume remained strong. Over 960,000 square feet sold in the greater Columbus area this quarter. The majority of sales were in the West and East submarkets. Founders Properties purchased 2300 McGaw Road for over $10 million ($47 PSF), coming in as the largest size sale of the quarter. BIG Acquisitions, LLC bought 850 and 870 Corduroy Road in a multi-property sale with 200,000 square feet near the end of the quarter.
Mini Bulk Demand
We are seeing a huge growth trend in mini bulk speculative construction in the Columbus market. From the years 2018 to 2021, there was approximately 5 million square feet of speculative construction completed in the mini bulk category. Over the past 18 months alone, there has been 3 million square feet of mini bulk buildings completed, with another 3 million square feet to be completed over the next 6 months. Consumer demand for smaller spaces has primarily stemmed from regional last mile operations, an uptick in pharmaceutical operations, and growth in the trades requiring supply houses to expand. Speed to market, as well as the challenging development landscape has caused tenants to focus on speculative buildings versus build-to-suits. We fully expect well located mini bulk buildings to continue to be in high demand. As it sits today, the pipeline remains full with over 50 users actively in the market seeking space in the 50,000-300,000 square foot range.
*A new statistics set for reporting trends was created at the beginning of 2023. Please note that when comparing current trends to past quarters, there will be discrepancies. Properties Colliers | Columbus tracks are 10,000 square feet and above, industrial and flex properties, single and multi-tenant and now includes owner occupied buildings.
Check out the full Q2 2023 Industrial Trends report here!
Office Market Update
The Columbus office market has adapted to the changes in the workplace environment within the last three years. Negative absorption* was recorded for the second quarter of 2023, and the vacancy rate increased slightly from 18.73 to 18.77 percent. Sublease vacant space increased to 3.72 percent with the availability over four percent. Asking rates have remained steady while operating expenses continue to increase slightly for an overall full-service rate of $22.14. The need for office space has stayed consistent as construction remains targeted on Class A space, which offers desirable building amenities for employees to enjoy.
The vacancy rate has increased over the past three quarters, now at 18.77 percent. The New Albany submarket remains the highest vacancy rate at 40 percent, which is due to the 8111 Smith’s Mill Road vacancy of 175,000 square feet. Sublease vacancy at 5500 Frantz Road kept Dublin’s rate over 26 percent. Vacancy decreased to 20.70 percent in Easton after last quarter’s record high vacancy. The decrease was mainly due to NetJets’ lease at 3100 Easton Square Place for 94,000 square feet. Sublease vacancy in Easton is 12.32 percent, which accounts for over half of the total vacancy in the submarket.
Net absorption is a reflective indicator of market activity because it represents tenants moving in and out of space. When a tenant moves into the space, the square feet in the area is positively absorbed, but when a tenant moves out of the space it is negatively absorbed. This quarter, the net absorption was negative 146,320 square feet.
Construction has remained the same as the first quarter with 11 projects consisting of 1,097,606 square feet. The majority of office construction, over 430,000 square feet, is in the CBD submarket and is expected to deliver late fourth quarter or early 2024. The Arlington/Grandview, CBD and Dublin submarkets all have buildings under construction that are larger than 120,000 square feet. The remaining construction is in the North Central, Delaware, Westerville and Worthington submarkets. A decrease in office construction is anticipated throughout the remainder of 2023 while demand for furnished, renovated and quickly available spaces rises.
This quarter, office properties totaling over 300,000 square feet were sold in Central Ohio. The average price per square foot was $134.41, and the average building size was just over 20,000 square feet. Alterra Real Estate Advisors bought 1 East Campus View Boulevard with 57,855 square feet for $3,104,047 ($53.65 PSF).
Sublease Continues to Rise, But Columbus Remains Under the National Average
Sublease space increased over 100% since the beginning of 2020. Businesses started to sublease space when the pandemic influenced in-person office structure. Three years later, many employees are returning to office. However, sublease availability has not returned to pre-pandemic levels. The U.S. office market has a record 254 million square feet of available sublease space. Columbus’ office market has over 2.2 million square feet of sublease space. Although Columbus has seen an increase in availability, the market remains under the average sublease availability.
Check out the full Q2 2023 Office Trends report here!