March General Meeting
A Tale of Two Markets – Central Ohio’s Housing Forecast
On Thursday, March 21, 2024, over 80 members of the Columbus Apartment Association met for a breakfast General Meeting featuring the annual Industry Forecast by Rob Vogt, President of Vogt Strategic Insights.
The meeting began with Laura Swanson, CAA Executive Director welcoming members and making a few housekeeping announcements before turning the podium over to CAA President Don Brunner. Brunner welcomed new CAA members in attendance and recognized the high scorers from the CAA Bowling for Charity event before introducing Vogt.
Vogt began his “Tale of Two Markets: Suburbs and Downtown” presentation with an overview of 2023 market highlights that included stagnant rents with a less than one percent increase. He issued a caution of the skewed trends of high rent increases noting that data is compiled by advertisers. Industry data provide a more accurate picture including slow rent growth in 2023, which contrasts with a five percent rent growth in 2021 and over nine percent in 2022.
Already this year the downtown area, including Short North has seen a nine percent decline in rents. Vacancy rates have increased slightly to just over five percent. Turnover in the industry remains low, particularly in the suburbs where there isn’t as much stock as downtown. Central Ohio and particularly downtown continue to see a well-stocked pipeline.
In 2023 it is predicted there will be over 2600 completions with a net absorption of just over 2100 units which is the reason for the increase in vacancy rates.
“It’s really interesting to see that properties built after 2019 actually saw a decline in their asking rents of almost two percent over the past year. Properties built between 2010 and 2019 experienced a 3.5% decline in rents,” Vogt said. “The older properties where we see the headlines about the shortage of affordable housing, these all saw some rather robust increases in rents in 2023. I think there’s no surprise there that we have somewhat overbuilt the high-end market in Central Ohio and we’re going to continue to see very modest rent growth among newer properties.”
Comparing Columbus to other Midwest cities and comparative cities in the United States Vogt stated that Columbus rents continue to lag the rest of the U.S. and the Midwest, noting there is opportunity to increase rents, but we continue to remain lower than the rest of the region in the U.S. Columbus is an anomaly in that we have a larger than average inventory of two-bedroom units, representing 54% of the stock. Comparatively, the rest of the Midwest is at 45% and Columbus has smaller unit sizes.
Moving to performance by sub-market, Vogt expressed his concern about the 11.2% vacancy rate in downtown/university/Short North sub-market which is by far the highest in Central Ohio. The lowest vacancy/highest occupancy can be found in Gahanna at just under two percent. The highest asking rents are also in the downtown sub-market, however, Vogt expects those to decline over the next 12 months.
In speaking about the number of new units planned for the area Vogt continued his focus on downtown. “I circled the downtown market because that’s where my concern is now, 5100 units planned, we’re actually tracking more units than that,” he said.
“The headlines, again, continue to be, we have a shortage of housing in Central Ohio. That is true, but it’s the balance of where we’re going to develop housing where we’re missing the mark,” Vogt said. “We’re as low as we’ve been in the past four years for single family, that’s where the real shortage is right now. Multifamily continues to be strong and that’s where my concern is, not necessarily for the building permits for multifamily, but where they’re going to be located.”
The need for housing is not equally spread in Central Ohio. The real need is in the suburban areas and some of the ex-urban areas. Much of the need is for affordable housing and the missing middle housing, some moderate rent projects, noting that stock cannot be conventionally developed due to cost of development and interest rates.
“Unfortunately, downtown is generating a disproportionate share of the new housing that’s being issued for multifamily. Development continues to go on unabated, it’s almost weekly we hear about a new project announced for either downtown, the Short North, west Franklinton, the University district and we don’t hear as much about what’s gong on in the suburbs,” Vogt said. “I think a lot of that is due to the challenges of really trying to develop multifamily housing in these suburban areas. I wouldn’t be surprised to see the vacancy rate downtown hit 14% in the coming months.”
Only one quarter of residents who have jobs downtown live downtown, this statistic is relatively low when compared to other Midwest cities. The fundamental shifts in the workplace as the result of the pandemic have had an impact on those choosing to live downtown. In 2019 over 90,000 people worked downtown compared to 36,000 – 60,000 today.
Another cause for concern is job growth is lagging, but a large part of that is that we don’t have housing, specifically, there’s not enough affordable housing to house the workers. In roads are being made with newly announced affordable projects downtown, however, historically Columbus has entirely missed the more affordable market.
Right now, there are 5800 units proposed for downtown with over 1,000 currently under construction. To get back to a five percent vacancy level, nine months would be needed to absorb excess inventory. To absorb the units under construction based on 60 units per year, it would take two years to absorb that stock. With the additional 5800 proposed units it would take eight years to absorb.
Moving to the market predictions, it is forecast a year end 5.5% vacancy factor for year end 2024, Vogt believes that it is accurate, but could be a bit higher, the number will be influenced by the amount of product downtown. It is estimated that rents will increase 2.6%. With the new tax abatement program in Columbus, development outside of downtown and the short north is being encouraged. The development that will be sparked will likely be affordable.
“One of the things to keep an eye on is, we’ve already got the Merchant Building, previously the North Market Tower under construction, that’ll be an interesting project to watch. I think that’ll be an indication of how robust the downtown market is and how it’s able to recover,” Vogt said. “We just had an announcement over at the Scioto Peninsula for another phase of that project, the project that’s already there is really slow to lease up. They’ve started renovation on the Kroger Bakery which is another couple hundred units. The Continental Building downtown has been announced as another 344 units, I’ve got some real concerns about projects like that and what it could potentially do to the downtown market.”
Turning to Intel, Vogt noted it’s hard to predict as the delay of opening will have an impact. Newark, Johnstown, and Delaware are strong markets now with low vacancy rates. One issue is that the rent levels in Newark and Johnstown aren’t high enough to get to the levels needed for large scale apartment development. However, there has been strong development in New Albany.
Younger renters continue to be attracted to mixed-use developments, walkable neighborhoods with restaurants, bars, grocery stores and coffee shops. These developments attract those who might have been interested in downtown living.
Vogt firmly believes we will see more single family for rent homes. With the high interest rates and housing costs, for rent single family homes are the wave of the future has families seek out housing in school districts that are attractive.
Fielding questions from the audience Vogt answered questions about how to create more affordable housing, stating that tax abatement's and subsidies are really the only want to create more. What a smaller generation not seeking higher education will do to some localities with small or private universities, Vogt said it’s too soon to say what impacts will be felt. He noted that the trend of for rent single family homes is something that we’ll see a lot of in the future.
Swanson thanked members for coming to the meeting and encouraged everyone to attend the May General Meeting featuring former Ohio State football player Harry Miller in Creating a Culture of Wellness as he discusses his mental health journey.
The meeting began with Laura Swanson, CAA Executive Director welcoming members and making a few housekeeping announcements before turning the podium over to CAA President Don Brunner. Brunner welcomed new CAA members in attendance and recognized the high scorers from the CAA Bowling for Charity event before introducing Vogt.
Vogt began his “Tale of Two Markets: Suburbs and Downtown” presentation with an overview of 2023 market highlights that included stagnant rents with a less than one percent increase. He issued a caution of the skewed trends of high rent increases noting that data is compiled by advertisers. Industry data provide a more accurate picture including slow rent growth in 2023, which contrasts with a five percent rent growth in 2021 and over nine percent in 2022.
Already this year the downtown area, including Short North has seen a nine percent decline in rents. Vacancy rates have increased slightly to just over five percent. Turnover in the industry remains low, particularly in the suburbs where there isn’t as much stock as downtown. Central Ohio and particularly downtown continue to see a well-stocked pipeline.
In 2023 it is predicted there will be over 2600 completions with a net absorption of just over 2100 units which is the reason for the increase in vacancy rates.
“It’s really interesting to see that properties built after 2019 actually saw a decline in their asking rents of almost two percent over the past year. Properties built between 2010 and 2019 experienced a 3.5% decline in rents,” Vogt said. “The older properties where we see the headlines about the shortage of affordable housing, these all saw some rather robust increases in rents in 2023. I think there’s no surprise there that we have somewhat overbuilt the high-end market in Central Ohio and we’re going to continue to see very modest rent growth among newer properties.”
Comparing Columbus to other Midwest cities and comparative cities in the United States Vogt stated that Columbus rents continue to lag the rest of the U.S. and the Midwest, noting there is opportunity to increase rents, but we continue to remain lower than the rest of the region in the U.S. Columbus is an anomaly in that we have a larger than average inventory of two-bedroom units, representing 54% of the stock. Comparatively, the rest of the Midwest is at 45% and Columbus has smaller unit sizes.
Moving to performance by sub-market, Vogt expressed his concern about the 11.2% vacancy rate in downtown/university/Short North sub-market which is by far the highest in Central Ohio. The lowest vacancy/highest occupancy can be found in Gahanna at just under two percent. The highest asking rents are also in the downtown sub-market, however, Vogt expects those to decline over the next 12 months.
In speaking about the number of new units planned for the area Vogt continued his focus on downtown. “I circled the downtown market because that’s where my concern is now, 5100 units planned, we’re actually tracking more units than that,” he said.
“The headlines, again, continue to be, we have a shortage of housing in Central Ohio. That is true, but it’s the balance of where we’re going to develop housing where we’re missing the mark,” Vogt said. “We’re as low as we’ve been in the past four years for single family, that’s where the real shortage is right now. Multifamily continues to be strong and that’s where my concern is, not necessarily for the building permits for multifamily, but where they’re going to be located.”
The need for housing is not equally spread in Central Ohio. The real need is in the suburban areas and some of the ex-urban areas. Much of the need is for affordable housing and the missing middle housing, some moderate rent projects, noting that stock cannot be conventionally developed due to cost of development and interest rates.
“Unfortunately, downtown is generating a disproportionate share of the new housing that’s being issued for multifamily. Development continues to go on unabated, it’s almost weekly we hear about a new project announced for either downtown, the Short North, west Franklinton, the University district and we don’t hear as much about what’s gong on in the suburbs,” Vogt said. “I think a lot of that is due to the challenges of really trying to develop multifamily housing in these suburban areas. I wouldn’t be surprised to see the vacancy rate downtown hit 14% in the coming months.”
Only one quarter of residents who have jobs downtown live downtown, this statistic is relatively low when compared to other Midwest cities. The fundamental shifts in the workplace as the result of the pandemic have had an impact on those choosing to live downtown. In 2019 over 90,000 people worked downtown compared to 36,000 – 60,000 today.
Another cause for concern is job growth is lagging, but a large part of that is that we don’t have housing, specifically, there’s not enough affordable housing to house the workers. In roads are being made with newly announced affordable projects downtown, however, historically Columbus has entirely missed the more affordable market.
Right now, there are 5800 units proposed for downtown with over 1,000 currently under construction. To get back to a five percent vacancy level, nine months would be needed to absorb excess inventory. To absorb the units under construction based on 60 units per year, it would take two years to absorb that stock. With the additional 5800 proposed units it would take eight years to absorb.
Moving to the market predictions, it is forecast a year end 5.5% vacancy factor for year end 2024, Vogt believes that it is accurate, but could be a bit higher, the number will be influenced by the amount of product downtown. It is estimated that rents will increase 2.6%. With the new tax abatement program in Columbus, development outside of downtown and the short north is being encouraged. The development that will be sparked will likely be affordable.
“One of the things to keep an eye on is, we’ve already got the Merchant Building, previously the North Market Tower under construction, that’ll be an interesting project to watch. I think that’ll be an indication of how robust the downtown market is and how it’s able to recover,” Vogt said. “We just had an announcement over at the Scioto Peninsula for another phase of that project, the project that’s already there is really slow to lease up. They’ve started renovation on the Kroger Bakery which is another couple hundred units. The Continental Building downtown has been announced as another 344 units, I’ve got some real concerns about projects like that and what it could potentially do to the downtown market.”
Turning to Intel, Vogt noted it’s hard to predict as the delay of opening will have an impact. Newark, Johnstown, and Delaware are strong markets now with low vacancy rates. One issue is that the rent levels in Newark and Johnstown aren’t high enough to get to the levels needed for large scale apartment development. However, there has been strong development in New Albany.
Younger renters continue to be attracted to mixed-use developments, walkable neighborhoods with restaurants, bars, grocery stores and coffee shops. These developments attract those who might have been interested in downtown living.
Vogt firmly believes we will see more single family for rent homes. With the high interest rates and housing costs, for rent single family homes are the wave of the future has families seek out housing in school districts that are attractive.
Fielding questions from the audience Vogt answered questions about how to create more affordable housing, stating that tax abatement's and subsidies are really the only want to create more. What a smaller generation not seeking higher education will do to some localities with small or private universities, Vogt said it’s too soon to say what impacts will be felt. He noted that the trend of for rent single family homes is something that we’ll see a lot of in the future.
Swanson thanked members for coming to the meeting and encouraged everyone to attend the May General Meeting featuring former Ohio State football player Harry Miller in Creating a Culture of Wellness as he discusses his mental health journey.
| 2024 VSI CAA Industry Forecast |
