Columbus Ohio Multifamily Market Analysis Q2 2023

The multifamily housing market in Columbus has displayed both resilience and signs of a slowdown in recent months. With robust sales surpassing the pre-pandemic average, the market has witnessed substantial investor engagement, including notable transactions involving purchasers from out-of-state. However, there are indications of a deceleration, possibly influenced by elevated interest rates impacting the expectations of both buyers and sellers. On the demand side, the market has encountered obstacles with sluggish growth and rising vacancy rates, particularly in the 4 & 5-star sectors. Despite these fluctuations, Columbus continues to be an appealing market due to population expansion, significant investments, and potential avenues for development.

• Based on the most recent data export from Costar as of Q2 2023, the average capitalization rate in the Columbus market stands at 6.6%, with the lowest recorded at 5.4% and the highest at 8.4%. The lowest capitalization rate was observed in Downtown Columbus, while the highest was in Madison County, located west of Columbus.
• The multifamily sales in Columbus have reached a remarkable $1.8 billion in the past 12 months, surpassing twice the average of the three years preceding the pandemic.
• However, it is worth noting that a portfolio deal in the fourth quarter constituted the majority of this record-breaking volume, and excluding it, the quarter would have witnessed the lowest volume in recent years.
• The sales further declined in the first quarter of 2023, with a mere $60 million in total sales, representing the weakest quarter since mid-2020.
• In the first quarter, only 24 properties were sold, which is 32% below the average number of first-quarter transactions in the past five years.
• The muted investment activity is expected to persist due to high-interest rates, which have widened the gap between the expectations of buyers and sellers.
• The most notable deal in March involved the sale of Sycamore Ridge in Dublin for approximately $53 million, acquired by the Connor Group from Harbor Group International.
• Another significant transaction in February was the sale of The Gemma for $6.1 million to a buyer from Texas. At the time of sale, the property boasted full occupancy.
• The buyer profile in the market has undergone a shift, with an increased presence of private and institutional buyers from out-of-state.
• In the past year, national buyers accounted for over 90% of the total sales volume, compared to an average of 70% in the previous five years.

• The demand in the Columbus apartment market has experienced a slowdown, while the supply of new units has surged.
• Net absorption in the past year was 60% below the average before the pandemic, leading to a rise in vacancy rates.
• The market weakness is primarily observed in the 4 & 5-star asset types due to an influx of supply, while lower-rated sectors have demonstrated better resilience.
• Rent growth in Columbus is decelerating but at a slower pace compared to the national average.
• The construction of new apartments in Columbus has reached a record level, constituting 5.0% of the total market inventory.
• The initiation of construction projects is decreasing, and the rate of property deliveries is anticipated to decline by 2025, allowing demand to catch up with supply.
• Despite the softening market conditions, Columbus maintains a positive outlook due to population growth, significant investments, and expanding employment opportunities in the region.
• Based on historical data and job growth, the housing requirements in the Central Ohio region could potentially reach as high as 19,000 units per year in the coming decade.

Source: Costar Group