Fueled by continued population growth that has made Columbus the 14th-largest city in America and its strategic location in the U.S. Interstate system, the Columbus industrial market has been on a multi-year run in terms of new inventory and positive net absorption. Given the fact that drivers are able to reach approximately 50 percent of American households and 30 percent of Canadians within a one-day drive of the city, we see no end in sight for these market trends.
That one-day drive statistic has made Columbus one of the country’s leading e-commerce distribution markets. Also, according to a recent ranking by Realtor.com, the metropolitan area is the only large northern city to grow its population by more than 10 percent from 2010 to 2017. The company also reported that Columbus was the fourth-hottest housing market based on the number of hits each listing receives and time on the market.
Further, the central Ohio region’s business-friendly environment encourages developers to build in designated areas, and it is working.
At the close of the fourth quarter last year, 5.7 million square feet of new industrial product was under construction. The overall vacancy rate for the Columbus industrial market was 4.8 percent, which includes warehouse/distribution, manufacturing and flex space. CoStar Group is the source of all data referenced in this report.
With industrial rents similar to other Midwest markets, companies locating in these tax-abated areas can realize savings of up to $1 per square foot on real estate taxes for a 15-year period. That is a substantial operating cost savings versus a fully assessed property. Almost all of the new speculative development is in tax abatement zones.
Other drivers of the local economy and demand for industrial space include Columbus’ status as home to five Fortune 500 companies and 14 Fortune 1000 companies. There are approximately 50 colleges and universities in the region, led by The Ohio State University. The economy is diverse, with financial institutions, food, banking, fashion, aviation, logistics, steel, energy, medical research and healthcare.
Prominent employers include Nationwide Insurance, Wendy’s, JP Morgan Chase, Limited Brands and Huntington Bancshares, among others. Honda has been a driver in the market with its plant northwest of Columbus. The car company manufactures its Honda Accord Sedan and Coupe, along with the Acura TLX and ILX there. The facility has spurred the presence of numerous parts suppliers, such as upholstery makers and plastic injection molders.
The amount of new construction is in line with previous years and should be absorbed. In 2018, 5.5 million square feet of industrial space was added to inventory that now exceeds 290 million square feet. In 2017, 3.5 million square feet of new product came on the market, while just under 6 million square feet was delivered in 2016, approximately 4 million square feet in 2015 and a little more than 5 million square feet of industrial inventory was added in 2014.
The biggest industrial developers in the Columbus market are Duke Realty, Northpointe Development, Becknell Industrial, The Pizzuti Companies and VanTrust Real Estate LLC.
Exeter Property Group is the largest owner of industrial property in the region. Singapore-based Mapletree Investments and New York-based Blackstone have also recently been active investors in the Columbus market.
Clayco Real Estate Group out of St. Louis is jumping into the fray with the purchase of land at the southwest corner of I-70 and State Route 310. Shortly thereafter, Clayco landed Kohl’s in a build-to-suit of more than 1 million square feet that is expected to be delivered this year. The deal was noteworthy because that submarket has not been considered Columbus’ main warehousing corridor.
Who’s leasing where
As no market report is complete these days without a mention of Amazon activity locally, here it is: Duke is developing an 850,000-square-foot build-to-suit for the online retail giant. The project is located between Springfield and Columbus on I-70 in West Jefferson, a village in Madison County. The new fulfillment center is scheduled for delivery this year. It is Amazon’s third bulk distribution facility in the Columbus market.
The largest buildings under construction at the end of the fourth quarter of 2018 were all build-to-suit projects. This includes 1.2 million square feet for Kohl’s, 972,000 square feet for FedEx, 855,000 square feet for Amazon and 855,000 square feet for Medline.
In 2018, absorption was net positive at 3.8 million square feet, with only the third quarter posting negative numbers during the four quarters. The average quoted asking rental rate for available industrial space was $4.11 per square foot per year at the end of the fourth quarter in the Columbus market.
Other large lease signings from 2018 include Goodyear’s 1.2 million square feet and Quaker Oats Co. with 802,000 square feet. This speaks to a trend in the Columbus industrial market that we expect to continue in 2019 — larger industrial spaces of 400,000 feet or more have done well, while there is still a lot of competition with spaces between 100,000 to 200,000 square feet.
Total industrial building sales activity in the first three quarters of 2018 was up compared with the previous year. In the first nine months of 2018, the market saw 60 industrial sales transactions with a total volume of $618.5 million. The price per square foot averaged $52.19 last year. In the first nine months of 2017, the market posted 56 transactions with a total volume of $361 million. The price per square foot averaged $40.82.
Based upon these numbers, we expect a significant amount of speculative development in 2019. There has been over 6 million square feet of speculative buildings announced for delivery this year. However, with that amount of space planned, it will be interesting to see if all of them come to fruition. Either way, we expect another banner year for industrial development in central Ohio.