By Ryan Duling and Andy Warnock, Lument
Sizing up the Columbus, Ohio multifamily market is more challenging than it may seem to the casual observer. Neither fish nor fowl, Columbus doesn’t fit comfortably within the definitions of either growth or high-yield markets. Looked at from one angle, it appears largely suburban and conventional, but from another, increasingly sophisticated and demographically youthful.
Ryan Duling, Lument
The presence of large institutions in the economic landscape — banks, healthcare systems, state government, universities — lend Columbus a slightly plodding image, but the heartbeat of the local economy is a dynamic group of middle market concerns punching above their weight class in logistics, professional services, retail and the digital spectrum. Metaphorically, it’s the cousin you considered a bit dull growing up who blossomed into an adult success.
C-Bus’s relatively low population density, younger demographics and the relative ease of its transition to the work-from-home environment paid hefty dividends during the pandemic. Because infection and hospitalization rates were lower than average, the local economy was able to return to near normal in February, positioning the market to take full advantage of the stimulus-fueled economic recovery that could find its stride this summer.
Labor market weathers pandemic
Although COVID job losses were high initially (metro employment plummeted 15 percent between February and April of 2020), Columbus employment trends have gained momentum since the fall.
Andy Warnock, Lument
Total employment surged in October and reached parity with pre-pandemic levels in January, lowering the unemployment rate to 5.3 percent in the process and putting Columbus a step or two ahead of regional peers Cincinnati and Louisville and on par with Indianapolis.
While the payroll jobs deficit remains material, lingering losses should evaporate as the leisure service sector returns to full capacity and the metro’s healthcare complex catches up to a backlog of deferred procedures and preventative care.
Apartment market posts solid performance under supply stress
Apartment market performance was constructive throughout the pandemic. Tenants absorbed a net of nearly 5,000 vacant metro units during the 12-month period that ended in February, elevating the average occupancy rate of all properties surveyed by Yardi Matrix 35 basis points (0.35 percent) over the year to 94.3 percent — completion of nearly 4,500 new units notwithstanding.
Occupancy among stabilized, same-store properties was higher than prior year comparisons in every month since social distancing protocols were imposed, sitting at 94.7 percent in seasonally soft February or 16 basis points above the pre-COVID February 2020 level.
Rent trends also were brisk. Rents among stabilized metro properties increased sequentially in every month of the pandemic period, reaching a unit-weighted average of $1,045 in March, representing a solid 4.8 percent average advance over the 2020 comparison.
Bread and butter Class B gardens and workforce units led the way (respective Class B and Class C rents increased 5.1 percent and 5.2 percent year over year), but the Class A segment participated as well, increasing 1.9 percent on the same basis, despite supply challenges that caused occupancy to plunge to 93 percent in February, or down 153 basis points from 2020.
Urban neighborhoods fare well
Developer attention in recent years was concentrated on mid-rise product situated in Columbus’s lively Downtown/University submarket. Since 2017, 29 structures and nearly 6,000 units were added to this rapidly changing eight-square-mile landscape, nearly tripling the submarket’s Class B+ and A- inventory.
Prior to the pandemic, submarket performance was a pure triumph, with stabilized occupancy in February 2020 averaging more than 95 percent, and rents rising nearly 2 percent over the trailing 12-month period. Pandemic headwinds shifted tenant interest toward the suburbs last year, but urban lease-up trends remained constructive. Nineteen pre-stabilized urban properties absorbed an average of 5.2 units per month during the 12 months that ended in February, comparing favorably to a 4.2-unit average among 10 properties in the year-earlier period.
Although same-store occupancy and rent trends weakened, falling 354 basis points and 5 basis points year over year respectively, Columbus’s core urban performance continued to be among the strongest in the country.
Suburbs record strongest revenue growth in five years
At the same time, performance in suburban submarkets was exceptional. Among six suburban submarkets with inventories of 10,000 units or more, only one (Westerville) posted annual rent growth in March below 4 percent, and three managed increases of 6 percent or greater. Occupancy increased in each of the six, including three gains of 80 basis points or more. Revenue growth was particularly vigorous in areas with large workforce housing inventories south and east of downtown. Most notable were Grove City and Groveport, where average gross rent revenues popped 9 percent.
Property markets
Resilient market performance failed to ignite the investment sales markets, however; sales volume declined 47 percent last year to $305 million, the smallest total since 2013, and a larger year-over-year decline than the 30 percent national average.
Regional investors drove transaction velocity, spotlighting Class B garden complexes with value-add potential and workforce and affordable opportunities. Cap rates for Class B gardens gravitated toward the high-4 percent to low-5 percent vicinity, and workforce situations were priced to yields in the mid-5 to 7 percent range.
A recent bellwether transaction involved a portfolio of two newly built Class A garden assets located in Delaware County. Available data suggest the sale was priced near $200,000 per unit to a going-in yield in the mid-4 percent area, representing one of the lowest cap rates ever recorded in this market and a welcome vote of confidence from a national buyer.
Promising outlook
Columbus is in a position of relative strength as the pandemic era could give way to a nascent stimulus-fueled boom. Investors seeking workforce and suburban garden opportunities may benefit from another year or more of above-average rent growth, and this rising tide in time should lift urban performance back to former heights.
Ryan Duling and Andy Warnock are both managing directors with Lument. This article originally appeared in the April 2021 issue of Heartland Real Estate Business magazine.