As predicted, the Columbus industrial market saw a wild end to 2013 with more than 1 million square feet of leasing activity in the final weeks. During the first two months of 2014, the market continued this aggressive pace, as Denver-based DCT Industrial Trust leased its final block of 500,000 square feet. Several other prospective tenants for both existing big-box spaces and build-to-suit facilities are ready to ink deals.
The perfect storm is now brewing in Columbus for speculative construction as tenant demand remains strong and vacancy rates continue to fall. Only one Class A bulk warehouse and one Class B bulk warehouse currently remain vacant in the market for existing available product.
Flurry of a Finish
The Columbus market was feverish with activity near the end of 2013, resulting in Almo Corp. leasing 240,000 square feet, food safety innovator Handgards leasing 312,000 square feet and Government Liquidation leasing 516,000 square feet.
When you combine that last-minute rush with several other deals that were signed during the final months of the year, Columbus recorded more than 2 million square feet of positive absorption during the fourth quarter of 2013. This final burst of activity for the year resulted in just two bulk Class A warehouses sitting vacant when the ball dropped in Times Square. By the time the confetti was cleaned up off the streets in New York the next day, DCT had leased its 500,000-square-foot warehouse, leaving only Exxcel Project Management with available space at its 480,000-square-foot warehouse.
Who Are the Winners?
Prologis, which owns a 460,000-square-foot Class B warehouse on the west side of Columbus, now also stands poised to benefit from the lack of space availability. The improvements the company put into its warehouse in 2013, such as new T5 lighting, an upgraded ESFR sprinkler system, plus a fresh white coat of paint applied to the walls and roof, will surely pay off in these tighter market conditions.
Build-to-suit activity remains strong in Columbus, with many users now turning their focus to raw industrial ground for their solution as the large boxes of available space are drying up. A number of new tenants looking at Columbus for their next distribution center are expected to make decisions in the coming weeks and months that will result in projects being kicked off as the snow melts.
There are currently some seven to eight developers across Central Ohio with land sites ready to accommodate a prospective tenant with industrial space needs of approximately 500,000 square feet. For companies in need of approximately 700,000 square feet, there are only three or four developers that can accommodate this size.
Spec Building
With the vacancy rate in Columbus at the end of 2013 hovering around 7 percent, demand from users remaining strong and minimal vacancies among existing large boxes, several developers are now looking at the possibility of building spec warehouses again.
Without a doubt, the first developer with a new warehouse in the ground will have the early advantage in Columbus. Most tenants are working with extremely short time horizons and may be unable to wait an extra three to four months for a warehouse to be completed. Existing warehouse product will continue to have the advantage to meet the demand.
We expect to see developers build product in roughly two sizes: 425,000 to 475,000 square feet and 650,000 to 700,000 square feet. This construction activity will help ensure Columbus continues to accommodate the needs of space users who might otherwise turn to alternative markets such as Indianapolis, Louisville or Chicago.
Many industry experts believe the industrial vacancy rate will drop to approximately 6.7 percent at the end of the first quarter of 2014, which would be the lowest rate in quite a while.
With the expectation that a number of build-to-suit projects are also going to be finalized, there is excitement in the air. Today's momentum will likely build for several years. Owners, investors and tenants alike will continue to find Columbus a great place to do business in 2014 and beyond.
— Dan Wendorf, Senior Vice President, Jones Lang LaSalle Americas Inc. This article originally appeared in the March 2014 issue of Heartland Real Estate Business magazine.