Columbus Area Gets Its Footing
After a Long Period of Decline

After spiraling downward since the start of the decade, the Columbus-area office-leasing market gained traction last year as vacancy rates stabilized. The Ohio capital region's strengthening economy is breathing life into one of the country's weakest office markets and invigorating the retail, warehouse and apartment sectors.

OhioHealth is moving its headquarters into the former Borden building in downtown Columbus.

The improvements follow several blows -- the tech bust, job losses in the financial-services sector and a stream of new office buildings -- which hit office properties hard. Roughly one-fifth of the Columbus region's office space has been vacant since the end of 2002, and the area is one of only a handful of major markets with vacancy rates still higher than 20% in the first quarter, well above the 16.4% average of the 54 major markets surveyed by Property & Portfolio Research Inc., a real-estate research company based in Boston.

Office vacancy rates fell to 20.3% in the first quarter from a high of 21.4% in the first quarter of 2004, the research firm says. But some say it's largely still a tenant's market, because rents haven't stabilized. In addition to the higher vacancy rates, the office, retail, warehouse and apartment sectors also posted rents that were below national averages. Average prices on Columbus office transactions valued at $5 million and more rose to $119 a square foot last year from $84 a square foot in 2004, according to Real Capital Analytics Inc. in New York. Still, that's well below the national average of $189 a square foot.

"It's going in the right direction but it's not like some boom here," says Frank Kass, chairman of Continental Real Estate Cos., a developer of office, retail and residential properties based in Columbus.

Continental Real Estate has seized the opportunity to purchase partially vacant downtown office buildings to which Mr. Kass believes he can add value. In 2004, the company was part of a group that purchased the former Borden building in downtown Columbus for about $29 million, or about $49 a square foot. Mr. Kass says new tenants have signed leases in the building that soon will bring its occupancy up to about 90%. The building was 60% occupied when it was purchased two years ago. One big win: OhioHealth will move its headquarters and about 350 employees from outside downtown into about 90,000 square feet of the building.

Columbus, a largely white-collar city, is home to a diversified group of employers including retail-giant Limited Brands Inc., Nationwide Mutual Insurance Co. and Ohio State University. The region has outperformed such hard-luck manufacturing-oriented Midwestern cities as Detroit, and even Cleveland, by some important economic measures, such as employment levels.

The Columbus area's population climbed nearly 15% to 1.6 million in 2000 from 1990, well above the Detroit region's 4.8% gain and the Cleveland area's 2.2% rise over the period, according to the U.S. Census Bureau. The area's employment level in March was 0.1% lower than the previous March high in 2001, according to the Bureau of Labor Statistics. By contrast, the Detroit area's employment level was 8% lower than its previous March high in 2000 and Cleveland's job level was 6.2% lower than that region's previous March high in 2000.

Meanwhile, Columbus's downtown appears to be on an upswing. Developers have taken some older office buildings out of circulation by converting them into residential units, and the city council has awarded corporate income-tax incentives to 31 companies since 2002, which could bring as many as 1,994 new jobs to downtown Columbus, says Bob McLaughlin, head of Columbus' Downtown Development Office.

The northern edge of downtown also has gotten a shot in the arm. Nationwide Realty Investors, the real-estate development affiliate of Nationwide, built an arena that opened in 2000. The facility, home to the National Hockey League's Columbus Blue Jackets, is part of a 75-acre mixed-use development that's sprung up on land previously covered with parking lots and a state penitentiary that has been demolished.

The construction of about 1.1 million square feet of new office space in the district may have slowed the pickup in the office sector. But some boosters say the revitalized Arena district ultimately will help the city attract more businesses and residents. "The payback for short-term pain is very much a long-term gain," Mr. McLaughlin says.

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