Spec construction, downtown boom fueling Columbus’ CRE market

Richard Schuen

Richard Schuen

by Dan Rafter

Richard Schuen knows the Columbus market. As chief executive officer and principal with the Columbus office of Colliers International, Schuen works this market every day. And what does he see in this key Midwest city today? Plenty of commercial real estate activity and a continued demand for downtown living.

Midwest Real Estate News: Let’s start with industrial. How strong is that market today in Columbus?
Richard Schuen: Industrial has been terrific. There has been more than 5 million square feet of new construction projects that have broken ground this year. That is representative of a marketplace that has seen some pretty good demand, that is having an excellent stretch from an absorption standpoint. We have been steadily absorbing significant space.

MREN: How much absorption has the industrial market seen?
Schuen: Last year, Columbus saw almost 5 million square feet of absorption in the industrial market. It saw. 6 million or so the year before. We once had vacancy rates in the mid to high teens in our industrial sector. It is now, depending on what product type you are looking at in industrial, in the 5 or 6 percent range. If you look at bulk distribution, which is what Columbus is known for, that market has really tightened up.

MREN: Has spec construction returned to industrial here?
Schuen: It has, which is exciting. Most of the larger users needing 250,000 square feet to a 1 million square feet are conducting multi-market searches. They are looking at us, Indianapolis, Chicago, Louisville and Cincinnati. If a market like Columbus has absorbed so much space where there are not big blocks of space left, it is going to lose users who need large properties. Thank goodness, then, that much of the new construction is spec. Developers are bullish on it today. They think they are going to get their numbers, the rents they need to support their deals.

Cap rates are important, too. Across the board in Columbus we are seeing a compression in our cap rates. We have seen it the most in industrial. In Columbus we have seen sub-7 cap rates, cap rates of 6 percent to 6.5 percent to 7 percent for the highest-quality tenants.

MREN: How about retail? How is that sector performing in Columbus?
Schuen: We are seeing improvements. Fast-casual restaurants are hot right now. Columbus is known as a great test market for new concepts. A lot of people come here to test new concepts. Some that have taken place in Columbus and have achieved success are now being expanded. City Barbeque is one. Piada, which is like an Italian-style Chipotle, with very good food, has been very successful here, too. Of course, the large retail tenants continue to be hesitant to open new brick-and-mortar locations. This internet thing continues to catch on. You get online, order your merchandise and it’s on your doorstep the next day. It’s really cool. We’ll still see, obviously, the traditional retail not go away. But you have to question the real significant expansion of it from a brick-and-mortar standpoint. Online ordering is just too easy.

The Joseph, a new mixed-use development near downtown Columbus, has provided a boost to the city's retail and office markets.

The Joseph, a new mixed-use development near downtown Columbus, has provided a boost to the city’s retail and office markets.

MREN: How strong is the multi-family sector in Columbus?
Schuen: Multi-family is very strong. We always have a strong multi-family marketplace. We probably have 6,000 to 8,000 units under construction today. Some of these are in the traditional suburban greenfield locations, but what is really exciting is the urban infill development, the new developments in the middle of established areas. There has been a resurgence of our downtown. A big part of that is having people come down here and live. I’m sure that you are seeing that throughout the Midwest. We are not a Chicago by any means with our downtown urban living, but people do want to live in apartments in our downtown. And if they are not downtown, they are moving to the periphery in Grandview Heights and the German Village neighborhood.

MREN: What is bringing these people to downtown?
Schuen: They like the walkability and the close proximity of restaurants. Downtown has a strong appeal to the Millennials. You are seeing some retail come in downtown, too. Our downtown is seeing a lot of migration from office workers. A lot of office workers used to go to the suburbs five, 10 years ago. Now a lot of the office workers want to come back to the downtown. Companies are locating their offices downtown, going into creative and funky spaces.

MREN: How about the office market? How is that market performing today?
Schuen: It was what was lagging. Industrial ended up getting smoking hot. Retail has been good to strong depending on market. Multi-family has come back incredibly strong. Office, though, had been lagging. But we have seen some really good strides in the last six months to 12 months as it relates to investor demand. We have four projects that we are representing now, about $60 million worth of office investment sales. The appetite for that product has been as strong as it has been since the downturn. That is good. There are now some lower cap rates, some better values. There’s been a return of investor interest. It hasn’t been institutional money. It’s more private equity money. It has been a different buyer profile. But it has been good to see investors returning back here to a market like Columbus.

MREN: You’ve mentioned the resurgence in downtown Columbus. What is behind that?
Schuen: Companies move to downtown Columbus often for cultural reasons. Companies are looking for that live, work, play environment. The young talent is less likely to live in the burbs. Young workers are more likely to live in urban environments. Companies need to be where the talent pool is so that they can attract that group.

MREN: Are there any projects going on now in Columbus that you are excited about?
Schuen: Between downtown and the university on High Street, there is the Joseph, a six-story office building developed by Pizzuti Companies. On the first floor, we’ve signed a retail deal with Anthropologie. Above it is five stories of office space.

MREN: Is there anything else you’d like to say about Columbus?
Schuen: I think of Columbus as the Austin of the Midwest. There’s a nice vibe to it. It is very technology-driven. There are some great companies here. That vibe provides a lot of opportunities for developers and investors, people in commercial real estate.

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