A booming industrial market. A multifamily sector that remains hot. And retail and office sectors that, despite challenges, are showing positive signs. That’s what the brokers working in Columbus and its suburbs say they see today in this Ohio city’s commercial real estate market.
And in even better news? Local brokers say they expect the rest of this year and the beginning of 2023 to be strong, too, with few signs of any slowdown in Columbus’ commercial sectors.
Consider real estate firm CASTO, which primarily focuses on retail and multifamily. Eric Leibowitz, vice president of development and leasing with the company, said that CASTO has been extremely busy this year and last, and that vacancy rates at the properties it owns in the Columbus market remain low.
“The Columbus market has been strong for a long time, other than the blip that was the start of COVID,” Leibowitz said. “We have great economic engines here in Columbus. We are the state capital. We have strong educational facilities, most notably Ohio State University. And companies want to locate here.”
A good example is the announcement by technology company Intel that it has selected a portion of the New Albany International Business Park in New Albany, Ohio, as the location for a more than $20 billion chip-manufacturing facility. New Albany is located about 14 miles from Columbus.
Intel plans to build two factories here by 2025. The project is expected to generate thousands of construction and manufacturing jobs.
“The Intel announcement has created a lot of buzz,” Leibowitz said. “This will be a big positive for the region. To what extent, we are waiting for that. But we all expect Intel’s project to be very positive for the Columbus area.”
Leibowitz said that he isn’t surprised by Intel’s decision. Many large corporations are considering Columbus for either their headquarters or new facilities. As Leibowitz says, the quality of life in Columbus is strong, with plenty of entertainment and cultural options. Columbus is also a pro-business community, with the city willing to take the necessary steps to create a welcoming environment for companies making the move here.
This high quality of life has provided a boost to the Columbus-area multifamily market. As Leibowitz says, demand for apartment living in the Columbus market is still strong and outpacing the supply of rental units.
“People want to stay in the Columbus area,” Leibowitz said. “There was certainly some pent-up demand for multifamily space. And our multifamily division has been great at both urban redevelopment and finding the right opportunities in the suburban markets. We are seeing great activity at our multifamily properties.”
And while multifamily has been strong, as it has been across the country, Leibowitz said that Columbus’ retail sector is performing well, too. He said that those retailers that reacted quickly during the pandemic to make it easier to get their products and services to customers performed well during COVID and are succeeding today.
Those that were slow to react to the changing shopping and dining habits of consumers during the pandemic? They haven’t fared nearly as well, Leibowitz said.
“The retailers that we lost during COVID were ones that we were probably going to lose anyway,” he said. “COVID might have expedited it, but they probably weren’t going to survive much longer. Several of our retailers found efficiencies and got better and stronger because they had to.”
Those efficiencies mostly centered around making it easier for wary consumers to shop and dine during the pandemic. Restaurants and retailers offered curbside pickup and enhanced their delivery options. They boosted their online presences and made ordering from their websites even easier.
And the savviest of these retailers have only continued offering these services as the Columbus area continues to move past the pandemic.
“The retailers who survived across the board made it easy for people to order online and schedule things like curbside pickup regardless of these consumers’ age or generation,” Leibowitz said. “During the pandemic, we worked hard to accommodate our tenants however we could. Our job was to help them be as successful as possible. We saw a lot of creativity during the pandemic. And we’ve seen some positives come out of it both from an operational and relationships perspective.”
Certain retailers, though, have been more successful than others. One segment that remains particularly strong is grocery-anchored retail, Leibowitz said. People need food, of course, so they continued to go to grocery stores even during the height of the pandemic. Grocery stores also appeal to those people who still enjoy going into stores instead of buying all their products online.
Retailers located near grocery stores also benefit from the spillover of supermarkets. Customers are more likely to run into a hardware store, clothing store, pet store or other retailer if they are already shopping at a grocery store in the same retail center.
“In my opinion, during the pandemic, people were looking for opportunities to get out of the house, to have a mundane task feel normal,” Leibowitz said. “That could have meant going to a hardware store or grocery store.”
A mirror to national trends?
Grant Fitzgerald, regional manager of Marcus & Millichap‘s Columbus and Cleveland offices, agreed that 2022 has been a particularly strong year for the Columbus commercial real estate market.
“Things are as busy as ever,” Fitzgerald said. “Across the country, 2022 has been a record year for deal velocity in commercial real estate. Columbus is no different.”
And like in other cities, the multifamily and industrial markets are especially strong in Columbus, Fitzgerald said. What is somewhat surprising is the strength of Columbus’ retail market, Fitzgerald said.
“Retail is doing very well in some instances,” he said. “Quality retail, especially, is doing well here. Really, Columbus is mirroring many of the trends you read about nationally.”
Fitzgerald said that demand for multifamily is strong among both investors and renters in Columbus for many of the same reasons that this demand is high across the country. As Fitzgerald says, three of the country’s largest generations are simultaneously in the renter pool in the United States today.
Millennials and Generation Z are both actively seeking apartments, Fitzgerald said, something that isn’t surprising. But at the same time, many Baby Boomers are choosing to downsize and become renters by choice.
That has boosted the demand for multifamily space significantly, Fitzgerald said.
“It is extremely challenging to build multifamily at the rate at which we need it,” Fitzgerald said. “Part of the reason for the demand in Columbus, when compared to coastal markets, is that you can build things in a reasonable timeframe here. The supply has attracted investors to Columbus. It’s a steady market, too, with strong, consistent employment. That has helped bring investors to Columbus for decades.”
The industrial market in and around Columbus has been strong for years. That hasn’t changed.
Columbus’ location in the center of the country helps. Companies need to get their products to consumers quickly today. Having distribution centers and warehouses in the country’s center helps them accomplish this. It makes sense, then, that companies are turning to markets like Columbus as they open more distribution centers.
Columbus, though, also boasts other attributes that make it an attractive destination for industrial users. It has a strong transportation infrastructure. And Fitzgerald said that the city is friendly to businesses. It also has a highly educated workforce.
“Industrial has been so hot for so long that in some ways it is cooling off. But this is happening in a very small and healthy way,” Fitzgerald said. “You read news stories about Amazon giving back space and it sounds bad. But that’s just a drop in the bucket. The short-term and long-term strength of the Columbus industrial market is very good. Columbus continues to attract large corporations.”
A bright future
Fitzgerald said that he expects a bright future for Columbus’ CRE market. For one thing, 2020 made it clear that it is no longer necessary for people to live in the more expensive coastal markets of the country. As people began working remotely, they could live anywhere. Markets like Columbus became more attractive because of their cost of living and high quality of life.
“For the price of a 400-square-foot palatial closet in Manhattan you could get a 2,000-square-foot Class-A apartment building in Columbus’ Short North neighborhood and have a much higher quality of life,” Fitzgerald said. “Columbus is a desirable market for people. You get more bang for your buck.”
Like other real estate firms in Columbus, CASTO has been busy planning and creating new mixed-use developments in the market. One of the biggest is Hamilton Quarter, located just a couple of miles from the location of the new Intel development in New Albany, Ohio.
This project includes the corporate headquarters building of Big Lots, a Target store, a medical facility and about 700 apartment units.
“It is the definition of mixed-use,” Leibowitz said. “This is a place where people can get everything they need. It’s one-stop shopping. You can get your groceries and your soft goods. There are great restaurants nearby. We have multifamily housing. It’s a great blend of uses.”
This good news, though, doesn’t mean that real estate firms don’t face challenges today. New construction can be especially difficult with the continuing supply chain disruptions. It is difficult to get many materials on time today, and the price of those materials continues to rise.
CASTO is dealing with this by involving its construction groups into leasing conversations earlier. This way, these construction professionals can explain that if a project needs to be delivered on a certain date, they need to order specific materials on a certain date, too.
As Leibowitz said, it’s all about coordinating schedules more efficiently.
“The way CASTO has been set up for many years has prepared us for pretty much anything,” Leibowitz said. “The way we are operating now is not different than the way in which we operated four or five or 10 years ago. We are adjusting based on what is going on around us. We have everything in house. We can coordinate within our own building, which makes the entire process easier.”
Rising interest rates, of course, are a concern, too. As Fitzgerald says, higher rates will slow some deals. But Fitzgerald isn’t predicting that these rates will cause any significant downward trend in the local CRE market.
“There is quite a lot of money out there,” Fitzgerald said. “The average person’s cash-in-hand is high compared to where it’s been in any other downward economy before. People have money in their bank accounts. Funds have money. Wealthy individuals have a lot of liquid cash. Rising interest rates will make the cost of capital more expensive. But if people have a lot of money out there ready to go, this won’t make as big of an impact as if people needed every dollar they had.”
At the same time, commercial real estate remains an attractive investment. When compared to other investments, commercial real estate remains a safe and steady option, Fitzgerald said.
“Commercial real estate is outperforming other assets,” he said. “Until that is no longer true, people will continue putting their money in real estate.”