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Like many markets in the Midwest and across the U.S., the Columbus industrial sector started the year sluggishly. First-quarter net absorption fell into the red with few notable leases to report, although a couple of significant investment sales closed. Generally, industrial activity is back-loaded into the second half of most years, and that should be the case for Columbus in 2013. Also, few markets have brighter long-term prospects than Central Ohio.
After closing the fourth quarter of 2012 with 500,000 square feet of net absorption, Central Ohio’s 260-million-square-foot industrial market gave back 239,439 square feet in the first quarter of 2013, resulting in an 8.9 percent vacancy rate. The bulk warehouse sector suffered through 833,816 square feet of negative net absorption in the first quarter, resulting in a jump in the vacancy rate of 233 basis points to 10.6 percent.
Bare Escentuals, a cosmetics retailer, registered the first quarter’s biggest industrial lease, expanding by 102,155 square feet to claim the entire 512,113-square-foot building at 5255 Centerpoint Drive. While leasing trudged along, a few investment sales took place in the first quarter of 2013, with notable deals including the sale of two buildings by KTR Capital Partners to affiliates of Welsh Property Trust, a $24.5 million transaction for 3051 Creekside Drive in Obetz, Ohio, and a $22.5 million transaction for a 754,000-square-foot building in Groveport, Ohio.
Despite a slow start on the early 2013 leasing front, build-to-suits continue to gain momentum. Central Ohio currently has three large prospective end users evaluating the market — an electronics company, a home improvement warehouse retailer and a home products company — all seeking 600,000 square feet or more.
Since these requirements are larger than any available blocks of space can accommodate, these end users will require build-to-suits, and we expect to see them finalize their decisions on developers and sites by mid-year.
In fact, only one developer, Exxcel Project Management, is building speculative product, while others are preparing sites with hopes of landing one of these bulk prospects.
A number of sizable build-to-suits are already underway as well. FedEx Corp. plans to occupy its 302,250-square-foot building at Groveport’s Air East Business Park in the third quarter of this year. Two projects are under construction in Etna Township, Ohio: ProLogis’s 766,000-square-foot build-to-suit for Navarre, which will enhance the tenant’s e-commerce fulfillment capabilities; and a 470,000-square-foot expansion of Ascena Retail Group’s 550,000-square-foot distribution center, an $80 million project that will be completed in early 2014.
Additionally, MSC Industrial Direct is building a $55 million, 400,000-square-foot distribution center that is scheduled to deliver in the fourth quarter of 2014.
Regaining the Advantage
During the past few years, Ohio has lost out on a handful of e-commerce fulfillment projects to sites in Indiana and Kentucky. Sure, Central Ohio can serve half of the U.S. population and is a one-day truck drive from most of the East Coast’s leading ports, but e-commerce fulfillment prospects opted for neighboring states in large part due to their lack of sales taxes on Internet transactions.
That playing field already is leveling and will continue to do so, whether it involves small businesses lobbying for equality, states angling to generate more revenue or federal action. For its part, Indiana will begin collecting e-commerce sales tax in 2014.
With changes in sales tax laws and regulations and e-commerce’s emphasis on next-day delivery, Central Ohio resumes primacy as one of the key distribution markets in the U.S.
Infrastructure improvements continue to enhance Central Ohio’s competitive stance as well. Norfolk Southern has increased capacity at the burgeoning Rickenbacker Intermodal Terminal, and CSX has significantly improved its intermodal capabilities through its National Gateway project. Both railroads have made tremendous infrastructure investments during the past five years in order to increase throughput from East Coast ports to Columbus.
While infrastructure and other improvements have yet to make a big impact on industrial occupancy in Central Ohio, the projects are important pieces of the puzzle that position the region for future growth.
Clustering, a supply-chain strategy that dates back a century, also impacts the growth of Central Ohio’s industrial market, as a 1.4-million-square-foot Personal Care Health and Beauty Park in New Albany, Ohio, steadily draws suppliers of the Limited Brands.
By clustering the manufacturing and distribution of packaging materials, containers and merchandise for brands such as Victoria’s Secret and Bath & Body Works, the Health and Beauty Park’s occupiers are expected to generate 1,500 full-time jobs and hundreds of part-time positions.
Despite the slow start to 2013, the Columbus and Central Ohio industrial market clearly has positive momentum after turning the corner two years ago. As long as economic and market fundamentals continue to improve — and we expect that they will — the Central Ohio industrial market will continue to improve at a measured pace.
— Richard Trott, senior vice president with Cassidy Turley