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Q1 2013 Columbus Market Trends Office

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  • 1. Office Trends ReportGreater Columbus Regionwww.colliers.com/columbusOffice Occupancy Mirrors Job GrowthColumbus region overviewThe Columbus office market gained 162,701 square feet of positive absorption in the first quarter. This is thefourth quarter in a row of positive absorption, as six of the past seven quarters have resulted in positive gainsfor the region. The vacancy rate now stands at 11.7 percent. Construction continues to pick up, as building hasbegun at Bob Evans 160,000 square foot headquarters at 8111 Smith’s Mill Road in New Albany, as well as the280,000 square foot Columbia Gas of Ohio building at 240 West Nationwide Blvd in the Arena District. The188,000 square foot Nationwide Mutual Insurance headquarters, in conjuction with the 51,000 square foot FBIheadquarters at 425 West Nationwide Boulevard in the Arena District were recently completed. Nationwidefully occupies their building, while the FBI occupies 44,926 square feet of its 51,000 square foot building.Franklin County Children’s Services completed construction on its 103,000 square foot Class A space locatedat 4071 East Main St. in the East submarket.Forecasts and Reflections• Investment sales will continue to be a big storyline in 2013, as the first quarter showed no signs of a slowdown.Duke Realty, a public investment REIT with $674 million of commercial properties in Columbus, continues todispose of its suburban Class A office assets. Atrium I, located at 5525 Parkcenter Drive in Dublin, recentlysold for $43.9 million. The 315,102 square foot Atrium I is fully occupied by Nationwide Insurance. Easton III,located at 3344 Morse Crossing in Easton, recently sold for $18.9 million. The 135,482 square foot Easton IIIis the headquarters for Lane Bryant. Both assets sold for $139 per square foot, and were acquired by ChamberStreet Properties, a private investment trust valued at $142 million for its Columbus commercial properties.• The largest new lease transactions of 2013 were Cardinal Health expanding 61,128 square feet at 6000Parkwood Place; FBI leasing 44,926 square feet at 425 West Nationwide Blvd; and Casto leasing 37,075square feet at 250 Civic Center Drive.Asking Rates andAVailabilitiesRental rates haveincreased over thecourse of the pastquarter, as Class A fullservice rates increasedfrom $19.20 to $19.27,while Class B fullservice rates rose from$15.93 to $16.07.Operating expenses sawan average increase of$0.33 in 2012, and thetrend has continued in2013 after posting a$0.05 uptick. Thevacancy rate remainedat 11.7 percent in thefirst quarter.market indicatorsRental RatesQ12013Q22013*VacancyNet absorptionconstructionRental Rates —*Projected trend for next quarterQ1 2013 | Office$14.00$15.00$16.00$17.00$18.00$19.00$20.00$21.003Q084Q081Q092Q093Q094Q091Q102Q103Q104Q101Q112Q113Q114Q111Q122Q123Q124Q121Q13Class A Rental Rates Class B0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%(400,000)(300,000)(200,000)(100,000)0100,000200,000300,000400,000500,000600,0003Q084Q081Q092Q093Q094Q091Q102Q103Q104Q101Q112Q113Q114Q111Q122Q123Q124Q121Q13Completions Absorption Vacancy RateAbsorption, Completions, and Vacancy Rates
  • 2. Market ActivityMarket Activity Volume is the sum of the absolute valueof each absorption change in the market, and it tells ushow much space was in transition in the quarter. Themarket outlook remains optimistic as office leasingactivity posted an additional 1,558,845 square feet,which is higher than it has been in prior first quarterswhen only 807,838 square feet on average were intransition. Colliers International tracks demand foroffice space by tracking tenants in the market. Theaverage number of tenants in the market has increaseddramatically in first quarter of 2013 from the fourthquarter 2012, 72 to 83. However, there are moretenants seeking large spaces than last quarter; 14tenants are looking for more than 25,000 square feet,and there are 31 tenants looking for 10,000 up to25,000 square feet of space.The types of tenants seen most frequently in the markethave been general medical, insurance, higher education,law firms after mergers, and technology users. Tenantsstill lack the urgency to close deals, due to short termefficiency concerns, unwillingness to sign long termleases, and speculation of lower net rental rates inconjunction with higher operating expenses that wehave seen as of late. Overall costs to make a move, andto build out space are more expensive than tenants arewilling to invest. Tenants are uncertain on the long termstability of the economy. The reoccuring issue facinglandlords is creating a steady cashflow, especially forlandlords who want to renegotiate their debt, and tooffer significant concessions.Employment dataThe preliminary unemployment rate for Columbus inFebruary rose to 6.4 percent from 5.5 percent inDecember according to the Bureau of Labor Statistics.Unemployment is still significantly better than 2010when we saw unemployment levels nearly reach 10percent. Year-over-year unemployment has dipped 13percent, or 800 basis points from the 7.2 percentunemployment levels recorded at the beginning ofFebruary of 2012. Columbus was the second rankedcity in the country in terms of job creation for the firstquarter of 2013. Currently, the rest of Ohio is 110 basispoints below the national average, and has not fared aswell as Columbus in terms of job growth and recovery.The sectors significant in office leasing have remainedsteady or down in the preliminary February numbers.The Information sector has remained flat throughoutthe first quarter. Employment for Financial Activitiesclosed the year strong in 2012, but has not performedwell in 2013 after posting a 2 percent decline, and aloss of 400 jobs in the sector. Professional andBusiness Services continue to compress after losing2,200 jobs for the second consecutive quarter.Education and Health Services are really beginning togain momentum and has added 700 jobs this quarter,up 2 percent since fourth quarter.The Columbus office market consistsof 15 suburban submarkets plus theCentral Business District submarket. TheColumbus region features a total of 63million square feet, 43.3 million of whichis suburban. Colliers International officedataset includes all 10,000 square foot,Class A, B, and C buildings, not ownedand fully leased by the government.Market Activitysales activityProperty Address sales date sale price Size sf Buyer Seller Price / Sf Type Submarket5525 Parkcenter Circle 3/15/2013 $43,900,000 315,102 Chamber Street Properties Duke Realty $139 A Dublin3344 Morse Crossing 3/15/2013 $18,900,000 135,485 Chamber Street Properties Duke Realty $139 A Easton250 East Town Street 2/27/2013 $1,800,000 22,400 Franklin University CBC Companies Inc. $80 C CBD1501-1509 Stonecreek Drive 2/25/2013 $1,325,000 15,611 Parkway Center LLC Stonecreek Office LLC $85 B Southeast5757 Beechcroft Road 1/11/2013 $925,000 13,490 C3H Ltd. Beechcroft Partners LLC $69 B Worthington673 Mohawk Street 1/14/2013 $830,000 13,250 Mohawk Village Properties LLC Pandiatonic Properties LLC $63 B CBD540 North Cleveland Avenue 1/28/2013 $796,800 10,624 Barksdale LLC Altair Professional Village $75 B Polaris423 East Town Street 2/28/2013 $690,000 9,382 Downtown Technology Center Cap Cit Ltd. $74 C CBD6209 Riverside Drive 2/22/2013 $595,000 7,344 Hilltop 6209 LLC Signature Investments $81 C DublinPowell PolarisWorthingtonWestervilleNewAlbanyLickingCountyFairfieldCountyMadisonCountyUnion CountyDelawareCountyPickaway CountyDublinBethelEastonEastGahanna/AirportCBDHilliardSouthwestSoutheastArlington/GrandviewNorthCentralLease activityProperty Address Sales Date Lease Sf tenant Asking price (NNN) Type Submarket6000 Parkwood Place 3/27/2013 61,128 Cardinal Health (Expansion) $12.50 A Dublin425 West Nationwide Boulevard 1/1/2013 44,926 FBI $16.50 A CBD250 Civic Center Drive 3/1/2013 37,075 Casto $11.50 B CBD100 Old Wilson Bridge Road 1/1/2013 30,000 Worthington Industries $8.00 B Worthington2228 CityGate Drive 3/8/2013 17,028 Zulily $9.95 B East7277 Smiths Mill Road 1/7/2013 11,470 White Fence Surgical Suites $17.95 A New Albany525 Metro Place North 1/9/2013 10,806 Via Quest $8.00 B Dublin1600 Dublin Road 3/18/2013 10,000 Time Warner (Expansion) $11.50 B Arlington/Grandview7450 Huntington Park Drive 1/30/2013 9,940 Quantum (Expansion) $10.95 B Worthington8000 Walton Parkway 1/24/2013 7,500 Ohio Health $14.95 A New Albanyp. 2 | Colliers Internationalresearch & forecast report | Q1 2013 | Office | Greater Columbus Region
  • 3. Office Medical ConstructionMedical office construction as picked up as two newprojects recently began. Ohio Health will be a 35,000square foot anchor tenant for a 45,000 square footbuilding at 4343 All Seasons Drive in Hilliard; whileCentral Ohio Primary Care began construction on its22,500 square foot buiding at 4895 Olentangy RiverRoad in the Arlington/Grandview submarket.update Market Comparisonsoffice marketNet Absorption Construction Asking Rental RatesSubmarket Total SF Vacant SF Vacancy % Current Quarter Year-to-date Current Completions Class A ($) Class B ($)CBD 19,343,367 2,193,852 11.3% 155,103 155,103 280,000 $19.48 $16.80Arlington/Grandview 4,853,288 462,112 9.5% 29,872 29,872 22,500 $22.88 $16.71Dublin 9,325,430 1,369,476 14.6% (150,992) (150,992) $19.02 $15.93East 3,869,477 508,453 13.1% 15,450 15,450 103,000 $15.65 $12.85Easton 2,705,095 224,450 8.3% 2,007 2,007 $20.28 $18.00Gahanna/Airport 1,235,246 82,687 6.6% (8,653) (8,653) $18.33 $16.24Hilliard 2,361,083 390,593 16.5% 52,163 52,163 56,000 $20.00 $16.37New Albany 1,880,057 188,793 10.0% 42,000 42,000 160,000 $18.30North Central 1,147,668 123,723 10.7% (30,414) (30,414) $12.98Polaris 4,405,927 316,730 7.1% (9,137) (9,137) $19.44 $19.39powell 273,589 32,244 11.7% (1,888) (1,888) $16.42Southeast 434,658 62,290 14.3% - -Southwest 219,119 15,770 7.2% 1,374 1,374 $15.32WESTERVILLE 4,383,103 553,177 12.6% 65,786 65,786 $19.37 $15.70WORTHINGTON 6,240,847 862,269 13.8% 30 30 $18.64 $15.01SUBURBAN TOTAL 43,345,289 5,192,767 11.9% 7,598 340,193 238,500 103,000 $19.17 $15.50TOTAL 62,688,656 7,386,619 11.7% 162,701 162,701 518,500 103,000 $19.27 $15.91Net Absorption Construction Asking Rental RatesProperty type Total SF Vacant SF Vacancy % Current Quarter Year-to-date Current Completions By Product TypeClass A 26,589,427 3,135,327 11.7% 53,114 53,114 507,500 103,000 $19.27Class B 22,401,293 2,864,800 12.7% 102,530 102,530 11,000 - $15.91Class C 13,697,936 1,386,492 10.1% 7,057 7,057 - - $13.40Totals 62,688,656 7,386,619 11.7% 162,701 162,701 518,500 103,000 $17.20quarterly comparison and totalsNet Absorption Construction Asking Rental RatesQuarter, year Total SF Vacant SF Vacancy % Current Quarter Year-to-date Current Completions By Product TypeQ4, 2012 63,192,662 7,143,523 11.7 93,462 350,209 391,000 395,000 $18.90 $15.93Q3, 2012 63,051,662 7,188,414 11.8 246,232 174,114 457,000 - $19.16 $15.60Q2, 2012 63,051,662 7,566,097 12.0 32,745 8,037 301,000 - $19.05 $15.67Q1, 2012 63,040,960 7,598,842 12.1 (22,230) (22,230) 301,000 140,000 $18.79 $15.57research & forecast report | Q1 2013 | Office | Greater Columbus RegionColliers International | p. 3
  • 4. Central Business DistrictThe CBD incurred 155,103 square feet of positiveabsorption. The vacancy rate now stands at 11.3percent, and should continue to trend downward asprime downtown space continues to be in high demand.The 188,000 square feet of space that was filled byNationwide Mutual Insurance in their new building at 10West Nationwide Blvd was enough to prevent adownturn this quarter. Casto leased 37,075 squarefeet of class A space at Bicentennial Plaza, located at250 Civic Center Drive. Downtown Columbuscontinues to see a considerable amount of transition asState Auto recently moved out of 40,533 square feet ofspace at 580 Fourth St., and relocated into 53,719square feet of space at 175 South Third St. The FBIvacated 24,690 square feet of space at 500 SouthFront, and now occupies 44,478 square feet of the51,000 square foot Class A building recently completedat 425 West Nationwide Blvd. Regus expanded into anadditional 7,936 square feet of space at the Galleria,located at 20 South Third St.West MarketThe west submarkets are Arlington/Grandview andHilliard. The Arlington/Grandview submarketexperienced another quarter of strong positiveabsorption as 29,872 square feet of space was filled.Time Warner expanded its operations by an additional10,000 square feet. Notable leases were signed at2200 Fifth Ave (9,031 square feet), 5005 Horizon’sDrive (5,000 square feet), and 1175 Dublin Road (4,390square feet). Hilliard’s vacancy fell from 17.8 percent to16.5 percent, 130 basis points, after posting 52,163square feet of positive absorption. The majority of theabsoprtion can be credited to Open Text leasing 33,528square feet of space in the Mill Run Business Park at3651 Ridge Mill Drive.North Columbus MarketThe North submarkets are Dublin, Powell, Polaris,North Central, Worthington and Westerville. The firstquarter storyline for the North submarket is theimmense amount of relocations by Fortune 500 firmssuch as Cardinal Health, Nationwide Mutual Insurance,and Verizon Communications.Dublin saw sizable negative absorption of 150,992square feet which can be attributed to NationwideMutual Insurance vacating 165,000 square feet ofspace at 5900 Parkwood Place. The Dublin vacancyrate now stands at 14.6 percent, a 180 basis pointincrease from the previous quarter. Wendy’s corporateoffices have moved out of 5555 Parkcenter Circle aftertheir temporary 28,383 square foot lease expired.Cardinal Health’s 61,128 square foot expansion at 6000Parkwood Place was the highlight of the quarter. ViaQuest leased 11,340 square feet at 525 Metro Place.Powell and North Central saw slight absorption changesand limited movement on the leasing side as most ofthe transition came through a series of move outs.Vacancy rates remain stable at 11.7 percent, after a highof 22 percent in the second quarter of 2012.Polaris and Westerville saw sizable changes from theprevious quarter as many notable leases transpired.General Dynamics, Integrated Installations, andWillsbros Engineers collectively leased 13,434 squarefeet of space at Spectrum Commerce Center located at921 Eastwind Drive. Molina Healthcare purchased3000 Corporate Exchange last quarter, and Iqor nolonger occupies space. Malcolm Pirnie moved out of14,244 square feet of Class A space at 1900 PolarisParkway, causing 9,137 square feet of negativeabsorption for the quarter. Westerville was able tomanage 65,786 square feet of positive absorptiondespite multiple smaller vacancies.Worthington had 30 square feet of positive absorptionafter Clark Schaeffer and Brookfield Insurance movedout of 27,582 square feet of space at Two CrosswoodsCenter located at 150 East Campus View Blvd. CTConsulants leased 10,274 square feet of space atNorthwoods I, located at 7965 High Street; whileQuantum expanded by 9,940 square feet of space atFive Crosswoods, located at 7450 Huntington ParkDrive. Worthington Industries has moved into 30,000square feet of space at 100 Old Wilson Bridge Road.East MarketThe east submarkets are the East side, Easton,Gahanna/Airport, and New Albany. These submarketshave historically been among the most active, butrecorded a slow first quarter. Absorption in Eastonwas positive as 2,007 square feet of space traded.Mast Global signed a 6,084 square foot lease at 4100Regent St. Gahanna posted 8,653 square feet ofnegative absorption. As mentioned earlier, New Albanyremains the focal point for new construction, as over160,00 square feet of projects are in progress, andanother two hundred thousand are in the pipeline forfuture quarters. New Albany recorded 42,000 ofpositive absorption, in large part due to Maximus andMount Vernon Nazarene taking 28,647 square feet ofClass A space at 5150 Dublin Granville Road.VacancyThe Columbus office market continued recovering inmost submarkets across the region in the first quarterof 2013. The Central Business District (CBD) officefundamentals tightened materially with vacancy ratesdropping from 11.4 percent to 11.34 percent, while thesuburban office sector fundamentals tightened evenmore, with vacancy rates dropping from 12 percent to11.9 percent.United States:Greater Columbus RegionRichard B. Schuen SIOR CCIMCEO | Principal | ColumbusTwo Miranova PlaceSuite 900Columbus, Ohio 43215tel +1 614 410 5612Leslie HobbsDirector of Marketing | OhioTwo Miranova PlaceSuite 900Columbus, Ohio 43215tel +1 614 410 5640Jonathan SchuenResearch AnalystTwo Miranova PlaceSuite 900Columbus, Ohio 43215tel +1 614 437 4495522 offices in62 countries on6 continentsUnited States: 147Canada: 37Latin America: 19Asia Pacific: 201EMEA: 118• $1.8 billion in annual revenue• 1.25 billion square feet undermanagement• Over 12,300 professionalsThis document/email has been prepared by ColliersInternational for advertising purposes. ColliersInternational statistics and data are audited annually andmay result in revisions to previously reported quarterlyand final year-end figures. Sources include ColumbusDispatch, Business First, Xceligent, CoStar, Chain StoreAge, Wall Street Journal, Bureau of Labor Statistics,Bureau of Economic Analysis, Property and Portfolio,Gallup and the Cleveland Federal Reserve.www.colliers.com/columbusAccelerating success.research & forecast report | Q1 2013 | Office | Greater Columbus Region