Central Ohio real estate watchers have been saying that the office market is recovering. Now they have the numbers to prove it.
For the first time since the Covid-19 pandemic started, there was significant positive absorption at about 424,000 square feet, said Hannah Williams, senior research coordinator at Colliers. That means more tenants moved into offices than vacated.
Absorption is counted when a tenant moves in, not when a lease is signed. So a lot of the major leases signed in the last year are starting to be accounted for, Williams said, like law firm Taft moving into Huntington Center.
A lot of the negative absorption during the pandemic came from tenants, like Alliance Data (now Bread Financial) and Zulilly, putting substantial square footage on the market for sublease. There is still about 1 million square feet of sublease space on the market today, but Williams said sublease spaces are starting to get be spoken for.
Williams said she thinks subleasing and vacancy are peaking now, but will go down later this year.
The vacancy rate in the fourth quarter of 2021 rose to 12.8%, up from about 8% in the last quarter of 2019, before the pandemic. In the first quarter of 2022, the vacancy rate stayed about the same, at 12.9%, according to the Colliers report.
Paul Krimm, managing director and principal at Colliers, said there are three large trends that have been emerging and will continue to play out the rest of this year. Local and regional office players continue to be active in the market, institutions that put a lot of office space up for sublease are either taking back space or reevaluating their office needs and leasing space elsewhere, and large firms continue to strategize on how to return to the office.
"The fundamentals in Central Ohio remain positive," Krimm said. "We have a great workforce and we have great momentum. This bodes well for our future."
There were some large leases signed in the first quarter of this year: Vertiv leased 72,000 square feet at 505 N. Cleveland Ave. near Polaris and Dismore & Shohl added 65,000 square feet at its 191 W. Nationwide Blvd. building.
Still, it's a "tenants' market right now, " Williams said. The combination of space available for sublease plus new Class A space entering the markets means landlords have to offer competitive rents, among other lures.
Williams said there will likely be more office renovations, like adding cafes and gyms, in an effort to get employees back into the office and compete with newer spaces. Krimm said owners of older office buildings will need to make updates to stay competitive, a trend that was going on before the pandemic started.
"Tenants are looking for the best space at the best price, employers are looking to offer amenities for their employees, and owners have to make sure they stay competitive," Krimm said.
A year ago, there were 127 tenants looks for office space in the Columbus market. Today there are 168, Williams said.
"As people are understanding their needs and what makes sense for them as they're coming back to the office, we'll see more activity there," Williams said.