A new report provides good news for the Columbus office market, with a forecast of strong rent increases this year.
“Healthy tenant demand and employment growth will spur a second consecutive year of strong rent gains. Steady job growth, led by office-using sector hiring, will persist in 2017, fueling corporate expansions and generating the need for larger spaces,” notes the 2017 U.S. Office Investment Forecast from real estate services company Marcus & Millichap.
The report predicts that 1 million square feet will be delivered to market this year with about 70 percent of that targeted for new offices for Alliance Data, Abbott Laboratories and new space on the city hall campus.
Though that new office space is expected to be less than what was added last year.
The report has a glowing analysis of the Columbus economy.
“As one of the top performing Midwest markets, Columbus will attract a wide range of buyers (investors), resulting in demand outstripping supply,” according to the report.
The report predicts that most investors will eye properties north of Interstate 70 in Columbus and in Dublin, Grove City and Hilliard.
Of the 46 markets included in the report, Columbus ranks 23rd, up seven sports from the 2016 ranking.
Columbus is the highest ranked Midwestern city in the report. As far as other Ohio cities, Cleveland is 42nd and Cincinnati is 44th.
The rankings are based on a variety of variables, including projected employment growth, vacancy level and changed, construction and rents.
San Jose is ranked number one. It was second last year behind neighboring San Francisco, which slipped to third this year.
Seattle-Tacoma is second this year while Portland, Ore., is fourth, Boston is fifth, New York is sixth, Austin, Texas, is seventh, Raleigh, N.C., is eighth, Oakland is ninth and Orange County, Calif., is 10th.
“The investment climate will remain vibrant as a confluence of buyers seeking the stable returns of office assets make acquisitions from property owners ready to monetize recent performance gains,” the report notes.
St. Louis is ranked last in the report preceded by Milwaukee.
The report predicts that limited availability in the Columbus office market will result in a second-straight year of “healthy annual rent gains, as average rents reach a new high … the lack of new space will intensify demand for existing offices of semi-comparable quality.”
The report also expects investors to eye office space in northern Columbus, where rents are rising and vacancies are slightly increasing.
The report expects central Ohio to add about 12,000 new jobs this year that use office space. It forecasts an increase of 21,000 overall jobs in 2017, compared to the 18,600 created last year.
“The metro’s growing health industry should fuel demand for medical office assets. The limited number of listings in this segment will require buyers to scan all submarkets and bid aggressively,” the report predicts.
The report predicts that the average office space rent will increase by about 5 percent this year, though that’s slower than last year’s 7.2 percent increase.
The vacancy rate is expected to tighten to 10.7 percent this year.
“Value-added investors, motivated by a lack of new available space, may seek vacant stores or warehouses, with office conversion plans in mind,” the report notes.