Contrary to popular belief, not everyone seeking a better lifestyle moves to Atlanta or Houston. If you live in the Midwest, Columbus has become a prime destination, especially for young people.
The metro has a reputation for being more modern, cosmopolitan and affordable than its other Ohio peers like Cincinnati and Cleveland. U.S. News & World Report ranks Columbus among the top 30 “Most Fun Places to Live in the United States.”
Then it should come as no surprise that according to a new Bank of America report, Columbus tied with Austin for the largest population growth on a percentage basis among major U.S. metropolitan areas during the last half of 2023.
Reliable in-migration, however, is just one of the reasons Columbus, the 14th largest city in the country, according to the U.S. Census Bureau, has become an attractive option for multifamily investors.
Another reason is its thriving economy. Columbus is the state capital and home to the Buckeye State’s largest university, The Ohio State University, which together account for approximately 30 percent of the city’s workforce. These two institutions give the economy exceptional stability.
Ohio State enrolls more students — 66,500 of them — than the University of Texas at Austin and has a larger staff than any other college in the country. In addition, Fortune 500 companies such as Cardinal Health, Nationwide Insurance and American Electric Power have long been headquartered in the Columbus area. The economy is also highly diversified, with no single industry representing more than 18 percent of the workforce.
As a result, the Columbus economy does quite well — and does so dependably. According to the U.S. Bureau of Labor Statistics, unemployment has consistently been lower than the national average, and Columbus was ranked seventh in the nation for economic growth in 2023.
Yet another cause for investor enthusiasm for Columbus is its scorching residential housing market. Zillow placed it third on its 2024 list of hottest markets, based on such considerations as speed at which homes are sold and expected appreciation values.
As a result of these trends, the housing affordability gap has soared, causing the homeownership rate in Columbus to fall 8 percentage points below the state average. This disparity is intensifying the demand for apartments.
Supply and Demand in Equilibrium
Perhaps it’s that Midwest sensibility, but these advantages have not led Columbus’ multifamily developers to go overboard, at least compared with their colleagues in Sun Belt markets. Recent deliveries, though higher than in the past, did not represent an unprecedented wave of new supply but were an extension of a long history of sustained construction.
Columbus saw approximately 8,300 units delivered in 2022 and 2023, growing the apartment stock by 4.7 percent, compared with an average of 5.3 percent for the rest of the country. There has been a concentration of deliveries in the downtown and the University District submarkets, but the majority of new units were located in such outer suburbs as Dublin, Gahanna, Grove City and Reynoldsburg.
With robust demand, Columbus saw the absorption of many of these new units in 2023, and market fundamentals, though weakening slightly, remained strong. The vacancy rate reached 5.3 percent at the end of 2023, a modest increase of 70 basis points from 2021.
Rent growth also moderated to 4.1 percent year-over-year at the end of 2023 to a more sustainable level, following a post-pandemic surge of 12.1 percent in mid-2022.
These favorable market fundamentals were the primary reason that, in the face of high interest rates and rising insurance costs, 2023 apartment sales held up as well as they did. Although transaction volume at the end of 2023 dropped 53 percent over the previous year, Columbus still outpaced the rest of the country, which saw an average decline of 60 percent.
Tech Poised to Boom in Columbus
But there’s another reason that transactions didn’t slow as much in Columbus as elsewhere — and it’s one that bodes well for the market once interest rates start to fall. We’re referring to Intel’s decision to invest more than $20 billion in the construction of two leading-edge chip factories.
The massive Intel project is under construction on a 1,000-acre megasite in New Albany, an outer suburb northeast of Columbus in Licking County. This ambitious undertaking, requiring 7,000 construction workers, will bring 3,000 permanent jobs to the Columbus economy when the plant opens in late 2026.
The ripple effects are already being felt. Amazon, Google and Microsoft have all declared their intentions to build new data centers in the area or expand existing facilities.
In 2023, Amazon Web Services announced plans to spend $7.8 billion to grow its data operations in central Ohio and purchased nearly 400 acres near the Intel site. Google has already completed a data center in New Albany and announced a $1.8 billion investment to create two more Columbus-area facilities, while Microsoft recently bought 500 acres of land in Licking County, including 200 acres in New Albany.
This tech boom has even begun to spill over to other industries. For instance, Columbus’ largest private employer, financial services giant JPMorgan Chase & Co., is building a new technology hub in northeast Columbus.
At the same time, Columbus is showing no sign of losing its manufacturing base. Honda and LG Energy Solutions have already begun to ramp up hiring for their new electric vehicle battery plant in Jeffersonville, southeast of Columbus. The $4.4 billion facility will employ 2,200 workers when it opens in 2025.
While a substantial percentage of any new construction will likely occur in the outer suburbs, the entire city will benefit. New Albany, for instance, is just a 25-minute commute from downtown.
The influx of billions of dollars and thousands of new jobs into the Columbus economy will support a healthy multifamily market. Although inevitably there will be some bumps in the road, this dependable market for multifamily investors seems on the verge of accelerating.
Ryan Duling is a senior managing director at Lument. He is based in Columbus, Ohio. This article originally appeared in the May/June issue of Midwest Multifamily & Affordable Housing Business.