The demise of the office market has been overblown by the media. There are many large vacant office buildings as a number of companies have allowed their staff to work from home. However, the majority of office workers are still working from the office the majority of the time, and this will continue to evolve over the next couple of years with more and more companies changing their work from home polices to require employees to be in the office the majority of the week. The daily occupancy of the occupied office spaces in our office buildings continues to increase with Tuesday through Thursdays being the most occupied days. In Columbus, Ohio the overall market vacancy is currently 10.7% according to Costar, including owner occupied buildings. Much of this vacancy is in a few large single tenant buildings such as the 406,000 SF office in Dublin, Ohio vacated by Cardinal Health, and several hundred thousand square feet vacated by Nationwide Insurance and State Farm Insurance. However, if you exclude the 30 largest vacancies, the overall office vacancy is only 7%.
The overall Columbus, Ohio office market had a negative 1.1 million SF of net absorption over the last 12 months; however, this figure changes to 553,000 SF of positive net absorption over the last 12 months if the largest 30 vacant buildings are excluded, and this same building set showed a net absorption of 670,000 SF positive in the 12 months prior. In fact, we have seen the office leasing market become much more active starting in February of 2023, and Alterra has signed a number of new leases and expansions since the beginning of the year including 4 recent leases/expansion in our 3 Easton Oval building. We are seeing office expansions in the smaller to mid-size offices in the following industries: construction, engineering, logistics, healthcare and others. Many of the industries continue to allow their employees to stay home are insurance, technology and call centers.
There will be a number of foreclosures of some of the larger single tenant office buildings and some multi-tenant office buildings that were purchased for very high prices and cannot support their debt due to vacancies. For investors, this is an excellent time to buy office buildings with some vacancy at a discount. Some of these larger vacant office buildings have been selling for as little as $30 to $40 per square foot.
The warehouse market continues to be on fire, however the absorption has slowed since much of the pent up demand has been satisfied. With tenants moving to some of the new buildings that have been recently constructed, we are finally starting to see some spaces become available. Vacancy increased from 2.7% to 5.3%, and absorption has slowed to 8.2 million SF in the past 12 months from 17.7 million SF in the prior 12 months. Rents and sale prices have moderated slightly but continue to be elevated over pre 2020 prices. All of our clients continue to tell us that they are still very busy and do not see any signs of a slow down.
Brad Kitchen, SIOR
Alterra Real Estate Advisors