real estate trends in central ohio 2016
TRANSCRIPT
Real Estate Trends in Central Ohio
2016
Cover Image Source: Crawford Hoying Development
© 2015 Urban Land Institute
Urban Land Institute1025 Thomas Jefferson Street, NW Suite 500 WestWashington, DC 20007-5201www.uli.org
ULI Columbus1196 Hope AvenueColumbus, OH 43212http://columbus.uli.org
A PUBLICATION FROM TABLE OF CONTENTS
Background 1Survey Respondent Characteristics 1General Business Prospects 2Key Issues for 2016 3 Real Estate Sectors 5 Capital Markets 7Central Ohio Submarkets 8 Hot Topics 10
Real Estate Trends in Central Ohio
2016
Respondents by field
Respondents by sector (multiple selections allowed) Respondents by position
1
BACKGROUND
Real Estate Trends in Central Ohio takes a pulse of the region's real estate market, including capital markets, various sectors, and
area submarkets. This survey complements the national Urban Land Institute's Emerging Trends in Real Estate, adding an in-
depth local perspective to the national survey's insights on the U.S. economy and real estate markets.
In early October, ULI Columbus distributed a link to an online survey to its full e-mail list, from which 38 responses were collected
from October 6 to November 9. Additionally, 17 interviews were conducted throughout October with key local experts from the
private and public sectors across a range of professional developments, in particular real estate development, management,
finance, and planning.
The information presented in this report comprise quantitative data from the survey and quotes from the interviews as well as the
comment sections in the survey.
Private Developer
32%
Builder 3%
Lender 8% Institutional
Investor 8%
Brokerage 3%
Professional Service Firm
30%
Government 8%
University 3%
Other 5%
Owner 32%
President/CEO 13%
EVP/COO/CFO 10%
Vice President 8%
Director/Manager 26%
Associate 8%
Other 3%
64%
58%
47%
28%
28%
25%
25%
22%
0% 20% 40% 60% 80% 100%
Residential - rental
Office
Retail
Residential - for sale
Industrial/distribution
Hospitality
Niche/alternative
Institutional/public
Other responses: historic preservation consultant, nonprofit market research.
SURVEY RESPONDENT CHARACTERISTICS
Private developers represent the largest share of survey
respondents at 32 percent, followed by professional
service firms (30 percent).
Compared to past years, owners and high-level
executives represent the lion's share of survey
respondents, with 63 percent at VP level and up.
Nearly half or more of the respondents are active in rental
housing, office, and retail. The sector composition in
general is similar to last year.
Expected and actual profitability of own business
Central Ohio compared to other U.S. markets by industry area
2
GENERAL BUSINESS PROSPECTS
Survey respondents' expectations of how 2015 will wrap up
matches sentiments from a year ago. With "turmoil in the
stock market" and cap rates trending down, real estate has
become a destination for investment as "people try to put
money to work." Another interviewee notes that 2015 has
been "a record year in total commercial square footage
under construction."
Expectations for 2016, at an average score of 4.27, are at
an all-time high in the five years covered by this report
series. Interviewees' opinions are more mixed, with some
seeing a leveling off in the market while other predict a
continued but perhaps smaller improvements
3.68 4.02 4.05
4.27 3.89 3.91 4.06
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
2013 2014 2015 2016
Expectations Actual
Excellent
Good
Fair
Poor
Abysmal
Prospects by industry, relative to other markets
Prospects are high across industry areas relative to other markets. Survey respondents view Central Ohio more favorably for
investment, lending, property management, and professional services. Despite an upbeat mood about the market for development
and scores still above neutral (3.00), the gap between Central Ohio and other markets is expected to narrow.
3.30
3.42
3.75
3.50
3.30
3.30
3.46
3.46
3.39
3.42
3.22
3.21
3.09
3.29
3.42
3.23
3.27
3.43
3.22
3.09
3.26
3.54
3.58
3.35
1.00 2.00 3.00 4.00 5.00
REITs
Real estate investment management
Private local real estate owners
Commercial bank real estate lenders
CMBS lenders/issuers
Insurance company real estate lenders
Real estate brokers
Architects, designers
Real estate consultants
Commercial developers
Multifamily developers
Homebuilders/residential land developers
2016
2015
Much worse Somewhat better
Much better
About the same
Somewhat worse
Top economic issues for Central Ohio in 2016
Central Ohio's biggest needs for land use and development
3
KEY ISSUES FOR 2016
Economic issues
Job growth is again the top economic
concern among Central Ohio's development
community, reflecting its status as the
ultimate driver of demand across sectors.
As the economy continues to strengthen,
interest rates and inflation have the greatest
gains in scoring. In contrast, energy prices fall
to the bottom of the list, reflecting cheaper oil
and gas costs.
3.67
4.03
4.14
3.78
3.56
3.63
3.24
4.14
3.86
4.14
3.62
3.17
1.00 2.00 3.00 4.00 5.00
Better building and zoning regulations
More economic growth
More workforce for construction and skilled trades
Better public transportation
Better parking in downtown/Short North
Greater availability of sites for development
2016
2015
Low priority High priority Moderate
4.22
4.03
4.00
3.51
3.19
3.38
3.95
3.95
3.65
3.10
3.30
3.18
1.00 2.00 3.00 4.00 5.00
Job growth
Income and wage growth
Interest rates
Inflation
Energy prices
State and local budgetproblems
2016 2015
No importance
Great importance Moderate
Land use and development needs
In 2016, workforce rises to the top of the priority list for development. "Every sub trade has the same issue of finding qual ified
workforce." One interviewee claims to "have never seen a tighter sub[contractor] market."
The workforce shortage is leading to higher construction costs being passed on from general contractor to developer and, in the
end, the tenant or buyer. "Material costs for the most part have stayed pretty level, but labor costs are going up quite a bi t."
Adding in increased development activity means that "the trades are exercising some pricing power."
Survey respondents rated building regulations and site availability as higher priorities than in years past. As the market
strengthens, developers are running into limits. "Sites are going to be a challenge due to zoning regulations." There is conc ern of
excessive regulation as well: "it’s a fight to get anything done, even if it's routine."
Demographics
Finance
Public Leadership
Design
Development
4
Household formations
62%
Wage growth 32%
Immigration 6%
Creative financing
56%
Deleveraging trends 10%
Tighter regulations
34%
Zoning reform 34%
Land availability
19%
Tax credits, incentives
47%
Mixed-use 86%
TOD 11%
Healthy/green 3%
Space efficiency
60%
Modular 3%
Healthy/ green 37%
The big trends
For the first time this year, the survey asked respondents to
choose what they think is the most important trend across
demographics, finance, public leadership, design and
development.
In demographics, household formations far outpaces wage
growth. And in finance, despite the increased availability of
both debt and equity, creative financing remains of great
interest. Part of the financing formula may be government tax
credits and incentives which , even with the rising concern
about building and zoning regulations, still rose to the top for
public leadership.
Concepts of building healthy places and green design fare
differently between the design and development categories.
In design, healthy and green draws more than a third of
respondents but does not factor much into development.
These results, at least in part, may be due to the competing
choices. "Mixed use" is the buzzword here and throughout
other parts of this report. In design, many people across the
office, retail, and rental housing sectors are seeking to create
more value with less space.
Investment recommendation for 2016: INDUSTRIAL
Investment recommendation for 2016: OFFICE
5
REAL ESTATE SECTORS
Industrial
The majority of survey respondents gives the
industrial sector a hold rating, with more on the
buy side than the sell side. There is a preference
for larger bulk/distribution or general industrial
space.
Interviewees appear more bullish, stating that
"industrial is huge for us right now" and "industrial
will continue to stay strong." And while industrial
is generally "very attractive on a national scale,"
Central Ohio performs well "even as it relates to
other markets around the country."
Office
Survey respondents and interviews continue to be
down on office generally, but the disparity
between urban and suburban office locations is
increasing sharply.
Fundamentally, the "office environment is
changing. The number of people per square foot
has changed and are downsizing." "I think the
rental rate growth over the past decade is zero."
However, while "velocity has slowed in suburban
locations," there is a growing trend of companies
"wanting to locate in an urban area for their
workforce, more so than we have seen over the
past 20 or 30 years."
0% 20% 40% 60% 80% 100%
All industrial
Bulk/distribution space
General industrial
R&D industrial
Self-storage
Sell
Hold
Buy
0% 20% 40% 60% 80% 100%
All office
CBD office
Suburban office
Medical office
Sell
Hold
Buy
Hospitality
Last year's report noted some concerns about the number of new hotel projects and rooms coming on the market. Again,
going into 2016, "you’ve got a lot of new rooms coming online. They’re building hotels everywhere."
The success of recent projects may have helped demonstrate that there is demand. Interviewees seem less concerned this
time and expect some continued increase in the hospitality sector.
Investment recommendation for 2016: RETAIL
Investment recommendation for 2016: RESIDENTAL - RENTAL
6
Retail
Neighborhood shopping centers continue to outpace
other retail, with strong survey ratings on the buy
side. In contrast, retail overall is "very flat." Multiple
interviewees believe that retail projects of any
significant scale will rely on "niche" characteristics
around location, design, and tenant base. On this
note, "Easton is a unique animal."
0% 20% 40% 60% 80% 100%
All retail
Regional malls
Power centers
Neighborhood/community
Sell
Hold
Buy
0% 20% 40% 60% 80% 100%
All apartments
Luxury apartments
Moderate apartments
Tax credit apartments
Student housing
Sell
Hold
Buy
Rental housing
Survey respondents continue to cool on rental
housing, with sell numbers starting match or
outnumber the buy side. Many interviewees have
seen continued growth in 2015 and expect more in
2016. Some remain highly optimistic: "I don't see
anything on the horizon slowing the activity down."
New rental housing stock is "white hot."
A smaller number are "cautiously bullish."
"Multifamily might slow down a little bit, but the
demand is still out there."
For-sale housing
Interviewees are positive about prospects in for-sale housing, supported by survey numbers, though limited, leaning toward the
buy side. Comments range from "residential sales have been very good" to "the market is hot for residential for sale."
While the market for urban condominiums is re-emerging, there is a clear shift for suburban single-family from previous eras of
housing growth. Compared to when developers stockpiled land purchases and options, "land is getting tougher and tougher to
find."
Moderate growth may be the best forecast: "I don’t think the for-sale model will be as frothy as the early 2000’s, but we are
seeing a growing demand for buyers."
"Financially, retail is very strong" perhaps due to years of discipline enforced on real estate from "downsizing and consolid ation of
tenants caused by online distribution channels." In addition to e-commerce, omnichannel brings on "a two-way consolidation. One
is the shrinking size of retailers, that they are trying to do more or the same in smaller spaces because they approach the r etail as
an omnichannel tool. Second is that you can do this with fewer stores."
Opinions are mixed on rents. One interviewee sees good increases and stable occupancy, while another believes that rents will
not grow dramatically as more supply enters the market. The rising cost of rent may also be "starting to keep some of that
[renter] demand in check."
As the adage goes, location may be the determinant on how different parts of the rental market perform in the future. "There is a
really strong push to downsize and want the quality of life downtown can provide."
Expected change in interest rates in the next three years Response to interest rate rise
Overall state of capital availability through 2016 Expected change in the availability of capital
7
CAPITAL MARKETS
Interest rates
Survey respondents and interviewees alike anticipate small increases in interest rates, which will remain low overall. One
interviewee bets on slight increases totaling 50 to 75 basis points.
After years of anticipation now of interest rate rises, the more interesting question is around how everyone will respond. Ma ny
survey respondents will seek to obtain financing or refinance and/or make portfolio adjustments. Strategies may include
"putting in hedges and interest rate caps and swaps" and "locking our rates for existing assets at sub-5% rates." Portfolio
adjustments will also be part of the puzzle, but interestingly enough, no one among the survey is looking to reduce
development activity just yet.
Capital availability
Underwriting and credit standards "continue to level and loosen slightly" as "lenders try to get more competitive for the number of
loans out there." Even though Dodd-Frank and other regulations have pushed up some peripheral costs around financing, "the
banks have been more aggressive than they were even in 2013 and 2014, so that has freed up capital to get deals done." A
similar story pertains to the equity side. "For every dollar of equity needed, there are $4 or $5 chasing those deals that could be on
acquisitions or ground-up development.”
While there is plenty of debt and equity capital available, the "blocking and tackling is more difficult" in terms of demonstrating
project feasibility. For example, "lenders are requiring evidence that there is a market for the projects they are financing, so they
have increased their requirements, oftentimes including a market study."
Fall Moderately 3%
Remain Stable 19%
Increase Moderately
75%
Increase Substantially
3% 58%
47%
0%
21%
0% 20% 40% 60% 80% 100%
Obtain financing orrefinancing now
Adjust portfolio
Reduce development activity
Scale back risk
Oversupplied 18%
In Balance 55%
Undersupplied 24%
Substantially Undersupplied
3% Some Increase 35%
No Change 56%
Some Decline 9%
Prospects for submarkets in 2016 (vs. past years' prospects for 2015 and 2014)
8
CENTRAL OHIO SUBMARKETS
Best prospects for 2016 and beyond
Downtown Columbus takes the top spot
for development and investment
prospects in 2016. "There is a
tremendous amount of momentum and
it's on its way to becoming a great
neighborhood."
The only constraint for downtown and
surrounding neighborhoods may be
transportation and parking, which "will
continue to be a main factor in solving for
how people live and work downtown."
Compared to last year, the Upper
Arlington/Grandview Heights area sees
the greatest boost in prospects, with
average scores up 0.39 points. As in
downtown, the continued and highly
visible development in Grandview Yard
appears to be raising prospects.
After Easton, there is a string of suburbs
across the north side of I-270 and in
Delaware County where prospects are
high. The map on the next page illustrates
a clear north-south divide in Central Ohio.
4.33
4.27
4.26
4.21
4.12
3.94
3.80
3.75
3.73
3.66
3.50
3.50
3.41
3.34
3.34
3.13
3.07
3.07
2.91
2.81
2.74
2.72
2.70
2.44
1.00 2.00 3.00 4.00 5.00
Downtown Columbus
UA/Grandview
Easton
Dublin
New Albany
Polaris
Powell
Worthington
Westerville
Gahanna/ Airport
Columbus -North
North Delaware
Hilliard
Union
Grove City
Groveport/ Obetz
Fairfield
Licking
Reynoldsburg
Columbus -East
Madison
Columbus -West
Pickaway
Columbus -South
Abysmal Poor Fair Good Excellent
Prospects for Central Ohio submarkets in 2016 (with change in score from 2015 prospects)
9
Powell 3.80 (+0.03)
Polaris 3.94 (+0.02)
Dublin 4.21 (+0.21)
New Albany 4.12 (-0.15)
UA/Grandview 4.27 (+0.39)
Downtown 4.33 (+0.12)
Easton 4.26 (-0.11)
Hilliard 3.41 (-0.18)
Gahanna/CMH 3.66 (+0.22)
Cbus North 3.50 (-0.32)
Cbus West 2.72 (+0.22)
Cbus East 2.81 (+0.17)
Worthington 3.75 (+0.33)
Westerville 3.73 (+0.08)
Cbus South 2.44 (+0.12)
Reynoldsburg 2.91 (+0.26)
Groveport/Obetz 3.13 (-0.06)
Grove City 3.34 (+0.15)
North Delaware 3.50 (+0.08)
Union 3.34 (+0.06)
Madison 2.74 (-0.06)
Pickaway 2.70 (-0.10)
Licking 3.07 (+0.31)
Fairfield 3.07 (+0.23)
Prospects elsewhere in Central Ohio
Outside of downtown and north side neighborhoods, other areas of Columbus continue to score lower in their development and
investment prospects. "There is a stigma against single-family development ground in the Columbus public school system.”
However, a couple of interviewees highlight opportunities in central Columbus neighborhoods such as the Near East Side and
Franklinton, which are already benefiting as downtown and the Short North area build out and prices rise.
As suburbs and outer counties see that "anything urban is hot," "it will be interesting to see the willingness of further out suburban
communities to urbanize." More areas around central Ohio may be taking note of millennials and baby boomers currently headin g
to urban settings and, in turn, seek to capture some of that market. "Mixed-use development in urban centers is a trend that is
going to continue for quite a while.”
Sentiments on statements about multifamily rental product
Level of support for job access solutions
10
HOT TOPICS
Housing affordability
While survey respondents generally feel that the multifamily housing market has been too focused on high-end rental units, the
concern is more from a social than a market perspective. Similar to the survey, interviewees are confident about the demographics
and that demand will continue to be there, even for the smaller rental product. "The vacancy rate downtown is pretty low, so I think
that the market is able to satisfy the creation of these luxury apartments." "We haven’t overbuilt because everything is filling."
However, interviewees also recognize that high "costs are keeping some of that demand in check." "There needs to be affordable
peppered into there somewhere." Developer interest in larger scale development projects could provide an opportunity "to be able
to mix in affordable housing." In part due to the labor shortages discussed earlier (page 3), the "cost of construction and land is
becoming more and more difficult to make [housing] affordable." Public incentives and subsidies will be required because private
developers "simply can’t build the [affordable housing] product. We can’t afford to do that."
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Development is in line with demographic trends andmarket demand
There has been too much focus on high-end rental units
Much of the new rental product is too small to continue tobe competitive in the market as millennials age
Strongly disagree
Disagree
Neutral
Agree
Strongly agree
62%
53%
38%
0% 20% 40% 60% 80% 100%
More affordable housingnear employment centers
Better COTA service
Employer contribution totransportation alternatives
Job access
Recent initiatives at New Albany Business Park and
Rickenbacker point to possible solutions around the link between
housing and employment. The combination of extended COTA
service and employers helping to resolve the "last-mile" problem
is a major step in connecting workers to jobs. "The New Albany
Smart Ride program is up from seven people when we launched
to 2,000 today, a huge increase and really needed for economic
development."
Car-wise "nobody is easy to get around as we are. It’s a dream
moving around this city." For those without their own reliable
transportation, including people in lower-wage distribution,
packaging, or call center jobs, "we have to come together with a
real transportation plan." "How we handle transit will have
everything to do with the success of our city or not. It's going to
create a lot of opportunity."
REAL ESTATE TRENDS IN CENTRAL OHIO 2016 TEAM
Jung Kim * Columbus 2020
Becca Capriniz * The Ohio State University
Jack Clark * The Ohio State University
Derek Ehlers *American Structurepoint
Jordan Fromm * JNF Creative
Autumn Glover *The Ohio State University - PACT
Jana HrdinovaCenter for Real Estate The Ohio State University
Phil Larger *Center for Real Estate
MANAGEMENT COMMITTEE
Terry Feogler *Chair
Jonathan Barnes *Chair for Mission Advancement
Michael Martin * Treasurer
Joseph Reidy *Governance Committee Chair
Jung Kim *Programs Cochair
Jennifer Knittle *Membership Cochair
Cheryl Pentella *Communications Chair
J. Jeffery McNealey *Programs Cochair
Justin Metzler *Membership Cochair
Michael Simpson *Sponsorship Chair
Allison Srail *Young Leaders Group Chair
ULI LEADERSHIP
Randall K. RoweChairman
ULI DISTRICT COUNCIL LEADERSHIP
Eric SwansonChair District Councils
ULI COLUMBUS PROJECT STAFF
Alicia Gaston District Council Coordinator
SPECIAL THANKS TO:
Jung Kim, ULI Columbus Management Committee Member, Jana Hrdinova and Phil Larger of Center for Real Estate at The Ohio State University, for their advisory and technical roles throughout the project. All the online survey respondents and individual interviewees. Members of the ULI Columbus Young Leaders Group who conducted the interviews.
INTERVIEWEES
William BrennanCFO Pizzuti Companies
Tom CaldwellExecutive Vice President of Finance and DevelopmentContinental Real Estate Companies
Don Casto, III *Principal CASTO
Jennifer ChryslerDirector of Community DevelopmentCity of New Albany
William Ebbing *PresidentNew Albany Company
Brian EllisPresident and COO Nationwide Realty Investors
Terry Foegler *Director of Strategic Initiatives/ Special ProjectsCity of Dublin
Brett Kaufman *Owner Kaufman Development
The Ohio State University
Pete LaRose *LaRose Companies
Peter Lohman *RL Partners
Patrick Lynch *Lifestyle Communities
Julie Mickley *Borror Properties
Michael Reeves *Civil & Environmental Consultants
Allison Srail *Crawford Hoying
Jason Wells *US Bank
Keith Myers *Associate Vice President of Physical Planning and Real Estate at The Ohio State University
John Royer *President Kohr Royer Griffith
Michael Simpson *President NAI Ohio Equities
Yaromir Steiner *Founder and CEO Steiner + Associates
Steven R. Schoeny *Director Department of Development, City of Columbus
Robert Vogt * PartnerVogt Strategic Insights
Bob White Jr.President Daimler
Mark WagenbrennerPresidentWagenbrenner Development
* ULI MEMBER
Patrick L. PhillipsChief Executive Officer
Marilee UtterExecutive Vice President District Councils
Urban Land Institute1025 Thomas Jefferson Street, NW Suite 500 WestWashington, DC 20007-5201www.uli.org
ULI Columbus1196 Hope AvenueColumbus, OH 43212http://columbus.uli.org