The Columbus, OH office space market had a sluggish Q3 despite relatively positive performance in the previous two quarters. Net absorption of office space was negative, and overall vacancies significantly jumped.
Columbus also added a decent chunk to its office stock, and year-to-date construction is higher than last year at the same time. However, high-interest rates and low capital markets activity could delay future development projects.
Despite the subpar office space performance, economic indicators in Columbus are strong. Unemployment decreased to 3.1%, lower than the national average of 3.5%. The state government also recently announced a new $4 billion electric vehicle battery plant development project between Honda and LG in Fayette county, south of the city.
General Area Overview and Demographics
The largest city and the capital of the state of Ohio, Columbus had a population of 941,364 as of January 2023.
The median age is 32.4, and the median household income is $54,902. The young population and relatively high household incomes drive a diverse economy with significant activity in education, healthcare, technology, logistics, aviation, and defense.
Columbus has a variable climate, with humid, wet summers and dry, cold winters. Like most other cities in the Midwest, Columbus gets its fair share of extreme weather events, such as thunderstorms, hail, flooding, and, rarely, tornadoes.
Columbus has historically had a resilient economy resistant to downturns, thanks to early efforts to diversify industries. The city is home to several Fortune 500 companies, including AEP, Nationwide Insurance, and Cardinal Health. Columbus also has a rich cultural and sports scene.
Summary of Columbus Office Space Performance in Q3 2022
Following two previous quarters of positive absorption, the Columbus office space market posted negative absorption at 671,000 square feet. The significant negative absorption countered the past two-quarters of positive activity, leaving a yearly negative absorption of 269,000 square feet.
In addition to negative absorption, vacancy rates skyrocketed nearly three points from 22.6% in Q2 2022 to 25.6% in Q3 2022. Overall, vacancy rates have had a year-over-year increase of 260 basis points, with the majority of vacant space (~5.2 million square feet) in Class A buildings.
Like most other major cities, Columbus’s office space slump is due to cultural shifts to hybrid and remote work schedules. Employers are having difficulties getting workers back into the office, resulting in low demand and high subleasing activity.
What Are Office Space Rents Like in Columbus?
As of the end of Q3 2022, average asking rates for office space in Columbus showed a 2.4% increase to $21.31 per square foot from $20.81 per square in Q2 2022. Class A office space was at $23.19 per square foot, representing a 1.4% year-over-year decrease.
Although the increase over the quarter was small, average office space rents are back at pre-pandemic levels. The submarkets with the highest average asking rates were N. High Street, Arlington, Arena, and Easton, at $30.00, $29.80, $26.94, and $26.30 per square foot, respectively.
Purchase & Leasing Activity
In Q3 2022, Columbus saw 441,000 square feet of new leasing activity, reaching over 1.2 million square feet of year-to-date leasing activity. Submarkets that saw the most leasing activity in Q3 2022 were Tuttle, New Albany, Easton, and Westar at 141,114, 128,181, 125,587, and 122,756 square feet, respectively.
Leasing activity this quarter mostly stayed flat like the previous two quarters, despite the increased vacancies. Purchasing activity is still a bit subdued and may remain that way for the foreseeable future due to recent interest rate hikes and generally low capital markets activity.
Notable Office Space Deals in Columbus in Q3 2022
Although overall purchasing activity was down this quarter, Columbus still saw a handful of notable lease transactions in Q3 2022, including:
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- Education Solutions Co.’s 41,792 square foot lease at 2231 Schrock Road;
- Innosource’s 24,710 lease renewal at 5600 Blazer Memorial Parkway;
- Arizona College of Nursing’s 20610 square foot lease at 445 Hutchinson Avenue;
- Linebarger, Goggan, Blair & Sampson’s 16,827 square foot lease at 5080 Tuttle Crossing Boulevard; and,
- First Merchants Bank’s 16, 246 square foot lease at 3650 Olentangy River Road.
Most of these notable lease agreements occurred in the North and Northwest submarket clusters.
New Office Space Development Activity in Columbus in Q3 2022
Columbus added three new buildings to its office space stock in Q3 2022, the largest of which was 231,000 square feet in the downtown area.
The city currently has 814,225 square feet of construction in the pipeline, with the Arlington and Brewery submarkets containing the majority of new development at 258,6265 and 218,000 square feet, respectively.
Market Forecast for Columbus’s Office Space Market in 2023
Columbus’s slow activity indicates larger shifts in office space markets post-pandemic, with high remote work rates and low demand. High-interest rates also make it hard to justify purchasing activity.
As employers struggle to get workers back into the office, experts expect general demand to remain low. Vacancies will likely increase next quarter, and Class B and lower accommodations will most likely experience difficulties.
However, there is room for optimism. Columbus has a decent amount of development projects in the pipeline, including its $4 billion manufacturing plant with Honda and LG. Slowly but surely, workers are returning to the office, and strong fundamentals/low employment are generally good signs for market activity in the near future.
Takeaways for Office Space Investors
Current conditions do not warrant selling at a loss, but Columbus office space investors will need to be defensive in the near future. Rents have continued to rise, but vacancies will likely rise next quarter.
investors can best capitalize on the current state of the market by investing in top-quality Class A office space that can entice workers to come back to the office. Subleasing can also be a means of offsetting vacancies and difficulties with lease renewals.
Like always, stay vigilant, do your research, and happy investing!