The Eidson Company, LLC
2017 Columbus Market Recap
Columbus is best known as the home of Fort Benning, which has long-served as the lifeblood for the economy here. In fact, the government sector is the largest employer in Columbus, with private office-using workers comprising the smallest share of jobs. Given these factors, velocity for building, leasing, and pricing growth is slower here.
Office deliveries have been lighter this cycle compared to the historical average, even with Blue Cross Blue Shield constructing a large facility. With less new supply, even limited demand has compressed vacancy and allowed for subtle rent increases over the cycle. But negative absorption in 2016-17 have put pressure on rent growth, and sales volume has slowed significantly. The available SF in 2017 was 813,000 SF which was up from the previous year; however, the 12-month net absorption was only 147,000 SF.
The inventory was up with 7.9 million SF of inventory in 726 buildings in the Columbus Market. The average buildings square footage is approximately 10,900 SF. No construction is under way and the 12-month delivered SF was only 7,500 SF which was down from 2016. 12-month sale prices have fallen to $62/SF with only 25 properties sold in 2017. The average sale price was $576,000 in 2017 with the 12-month sales volume at $8.6M, which is down from 2016.
The lack of deliveries this cycle has helped fundamentals in Columbus. Annual deliveries have averaged about half of what is normally brought to market in each year. And the reduced pressure from new supply has increased demand for existing space. In fact, the vacancy rate reached a trough in 2015. However, that substantial compression was exaggerated by the double occupancy of Blue Cross Blue Shield while they moved to their new facility.
The health insurance giant was located at the 147,000 SF building at 2357 Warm Springs Road for nearly 10 years. In August 2015, its new 235,000 SF location at 6087 Technology PKWY completed, and the staggered move-in began. However, the former space was not completely vacated until early 2016, which is what creates the negative absorption that year. The former HQ is still vacant and available for sale.
Another former HQ is also recently vacant. Carmike Cinemas was acquired by AMC Theaters in 2016 and most of the 100 jobs located in the two buildings were cut or moved by mid-2017 when the vacant buildings were sold to Columbus based Greystone Properties. Most of the roughly 82,000 SF of space is fully furnished and represents one of a handful of buildings in the Columbus metro with more than 20,000 SF of available space for lease. Most recently, the law firm Hall Booth Smith moved into 10,250 SF there.
The Columbus office market is not geared toward national or even regional tenants. As such, buildings are rated as 1 & 2 Star, as well as 3 Star space. Based on these factors, it is only natural that asking rent per SF for office space in Columbus is about half of that found in major metros. And while rent growth in Columbus has generally been positive over the last four years, cumulative growth has not been enough for average rents to surpass their prerecession peak.
Compared to smaller southeastern metros like Chattanooga, Huntsville, and Savannah, office rents here are closer in price than the national average, but still represent a 15% discount.
Only one new office building (about 7,500 SF) has delivered in the last 12 months and no other new construction is underway. However, a 40,000 SF conversion of a former auto dealership on 12th Street has been met with strong interest. Asking rents for the creative loft space have been around $17/SF/MG and 90% of the space was leased within the first month of opening. The largest tenants include Morgan and Morgan for the People, Strayer University, and CWC.
The average building traded since 2013 is around 12,000 SF, while multi-tenant buildings are naturally a little larger, at 20,000 SF. One of the largest deals in the last year involved Columbus-based Greystone Properties purchasing the former headquarters of Carmike Cinemas following its takeover by AMC Theaters. The portfolio trade included two, fully furnished office buildings with roughly 82,000 SF. The vacant properties were in good condition at the time of sale, but were completely vacant. The $3.2 million sale equated to about $39/SF, leaving a good amount of wiggle room for Greystone as it pursues tenants. While this trade is significant for Columbus when considering the size of the buildings, the pricing is a deep discount versus larger metros.
The sale price per SF has averaged $70 for the last three years, with cap rates close to 8%. A significant trade that is more in line with average pricing was the June 2016 sale of the 176,000 SF property at 2100 Comer Ave., which sold for $13 million ($74/SF). All parties involved were local—Columbus Healthcare Resources sold the property to Pezold Management Group at a 7% cap rate. In addition, the building was 100% leased when it sold, with the Department of Family and Children Services occupying more than 61,000 SF. Other tenants included New Horizons (37,000 SF) and the Columbus Health Department (31,000 SF).
Top employers not including Fort Benning in the area include TSYS (with 4,700 workers) and the Muscogee County School District (4,300). In terms of job announcements, Convergys has been opening new offices in Columbus, effectively adding up to 450 jobs over the last few years. And plans were announced for a five-year expansion at Pratt & Whitney. The aircraft engine maker will add roughly 220,000 SF of space and 500 workers to its facility. These projects should be a much-needed boon to the local economy, because the metro has lagged well behind the national average in job growth since 2011.
A significant project located outside of the metro that should have a positive effect on the Columbus metro and apartment demand is the new Sentury Tire plant being built in LaGrange. The 1.4 million SF facility will serve as the company’s North American headquarters and expects to employ more than 1,000 workers by 2019. Located less than an hour north of Columbus, the tire plant will likely employ some metro residents.