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Growing Columbus: the real estate impact of job creation incentives

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At least 50 companies that received job creation incentives expanded their real estate presence in 2016 and 2017 to accommodate new employees, resulting in over 8.2 million square feet of leasing and construction activity. This report outlines the economic and real estate impact of job creation incentives for both the industrial and office property sectors in the Columbus Region.

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Growing Columbus: the real estate impact of job creation incentives

  1. 1. the real estate impact of job creation incentives Growing Columbus Part one in a series by JLL Columbus Research 2018 At least 50 companies that received job creation incentives expanded their real estate presence in 2016 and 2017 to accommodate new employees, resulting in over 8.2 million square feet of leasing and construction activity. This report outlines the economic and real estate impact of job creation incentives for both the industrial and office property sectors in the Columbus Region.
  2. 2. 2 3 Growing Columbus: Part One | 2018 4.4million square feet of new construction activity 2.7million square feet of leasing 1.1million square feet expanded / renovated for existing buildings 8,756jobs promised $1 billionreal estate and / or equipment investment 13companies new to Columbus, resulting in over 5 million square feet (60%) of total activity Stats Quick *All data refer to state incentives from JobsOhio and the Ohio Development Services Agency View our interactive map: https://arcg.is/00eP0v
  3. 3. The Columbus industrial market has been hot in recent years as logistics and e-commerce users recognize the value of setting up operations in the region. Due to the region’s affordability, market accessibility, and robust infrastructure, expanding tenants have propelled Columbus to one of the top industrial markets in the country. Vacancy has dropped 5% in five years, while net absorption is 27 million square feet in that same time span. For many existing and new-to-market employers, job creation incentives are being utilized as a means to hire more workers, leading to an expanded real estate presence. 3.7 million square feet of absorption 30% of total net absorption in 2016 and 2017 Manufacturing took the largest share of leasing activity, but e-commerce is emerging at a rapid rate throughout the region, accounting for 2.8 million square feet. 3.3 million square feet of new construction completed 1.6 million square feet delivered in 2018 *1.6 MSF: Sofidel’s tissue manufacturing plant in Pickaway County 35%of the new product delivered in 2016 and 2017 36% 40% 20% 3% Industry share (sq. ft.) Manufacturing E-commerce Logistics and Distribution Healthcare Other Growing Columbus: Part One | 2018 4 5 IndustrialNew construction from incentive recipients Demand from incentive recipients View our interactive map: https://arcg.is/00eP0v
  4. 4. Growing Columbus: Part One | 2018 6 7 Incentive recipients are growing their workforce throughout the Columbus region and their activity aligns with underlying market trends. • Over 500,000 square feet of office space was leased, expanded, or renovated in 2016 and 2017 by companies receiving job creation incentives • Some of the larger projects, such as Huntington National Bank’s new, recently redeveloped location on Cleveland Avenue, are owner-user buildings, thus not affecting market fundamentals of competitive inventory tracked by JLL • Over half of the 27 office tenants that announced expansion plans are within the Information Services and Software industry. We anticipate roughly 35,000 square feet of future activity to accommodate promised jobs within this industry Office The chart above shows the leasing and expansion activity from companies receiving job creation incentives, as well as projected activity needed to accommodate promised jobs in the future. Using 175 square feet per employee as the average for the region, we project roughly 300,000 square feet is needed to accommodate future jobs promised by incentive recipients. 12.1 % Class A vacancy 500,000 square feet speculative space under construction 3 million square feet speculative space planned over the next 5 years • 71% of the square footage that incentive recipients invested in is considered premium, Class A space • Class A vacancy has dropped 2% despite over 1.0 million square feet of speculative deliveries • Rental rates have appreciated 12% with net demand for Class A space exceeding 1.5 million square feet • Developers and investors are taking note with an abundance of new office space planned for the next five years The office market has experienced a noticeable flight to quality over the past five years: Market trends > 600,000 500,000 400,000 300,000 200,000 100,000 0 1,700 1,650 1,600 1,550 1,500 1,450 1,400 1,350 1,300 Square feet Jobs Activity in 2016 and 2017 Needed for future growth Square feet Jobs View our interactive map: https://arcg.is/00eP0v
  5. 5. Local communities and economic development organizations continue to review the effectiveness of tax incentives with respect to real estate and job creation. Some studies from outside organizations have found that governments ultimately lose from such packages. With that said, penalties for not meeting job creation promises, also known as clawback provisions, are an important tool for government agencies and organizations similar to JobsOhio. As a result of missed promises, remedial action is taken against companies to salvage part of the local investment. Programs often include tax credits, loans, or grants, which result in a variety of remedial actions that can be taken. For example, those companies that receive tax credits and fail to meet their job promise are likely to see a reduction in term or percentage of tax credit received. Loan recipients often experience an increase in the interest rate received, typically a 3.0 percent increase if their job promises aren’t met. ClawbackProvisions 24 in the region missed the mark related to previous job or payroll promises in 2016 and 2017. Companies 17 experienced remedial action Companies 4 did not experience remedial action, typically due to exceeding expectations for either jobs created or payroll generated Companies 3 went bankrupt/voluntarily terminated the agreement Companies 1,283 jobs created of 2,616 of the jobs promised (50%) $26,792,325 amount of payroll missing from payroll promised Growing Columbus: Part One | 2018 8 9
  6. 6. Companies that are expanding their footprint are promising nearly 8,760 new employees over the next three to seven years. Job growth within Columbus has remained steady over the last five years with the employment base growing from roughly 930,000 to 1,037,000 employees, outpacing population growth for the metropolitan area. With the exceptionally low unemployment rate of 3.7 percent, does Columbus have the people to fill the jobs that are being created? Projections from a range of organizations, including the Mid-Ohio Regional Planning Agency, indicate strong population growth metrics for the future of the region. This will be critical to supporting continued job growth and related incentive packages for companies. The good news: people follow jobs. As companies continue to announce plans to expand and hire additional employees, expect both population and job growth to rise. Another major factor to sustained growth may be the region’s ability to retain talent graduating from The Ohio State University; on average, about 46% of students remain in Columbus following graduation, topping comparable markets like Austin (41%) and Raleigh (36%). Populationand job growth 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 - 2015 2020 2025 2030 2035 2040 2045 Growing Columbus: Part One | 2018 10 11 Population Employment Columbus MSA forecast
  7. 7. Sam Stouffer Senior Research Analyst +1 614 460 4419 sam.stouffer@am.jll.com About JLL JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2017, JLL had revenue of $7.9 billion and fee revenue of $6.7 billion; managed 4.6 billion square feet; and completed investment sales, acquisitions and finance transactions of approximately $170 billion. At the end of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of 82,000. As of December 31, 2017, LaSalle had $58.1 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com. About JLL Research JLL’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. JLL Columbus 65 E State Street, Suite 550 Columbus OH 43215 +1 614 460 4444 © 2018 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof. View our interactive map: https://arcg.is/00eP0v

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