What does the future hold for Columbus offices?
Offices throughout the Columbus area are battling COVID.
So far, COVID is winning. More Columbus-area offices are empty now than in at least nine years, according to recent reports by commercial real-estate firms.
According to the Cushman Wakefield firm, 20.3% of Columbus-area offices were vacant at the end of September, well above the national average of 15.1%.
Those vacancy rates don’t include hundreds of Columbus offices that are still leased but sitting empty while companies try to sublease them or decide whether or when to reoccupy.
“Columbus has seen more space returned to the market as a percent of inventory than almost any major office market nationally,” said Liz Ptacek, director of market analytics for the real estate information service Costar. “It’s really hard to say who will take that space.”
Despite all the empty office space in the Columbus area, developers are continuing to build offices while their counterparts in other cities stay on the sidelines.
About 1.3 million square feet of office space is under construction in Greater Columbus, more than in Philadelphia and about the same as in Phoenix and Seattle, all of them far bigger office markets than Columbus, according to Cushman Wakefield.
In Columbus, offices are under construction in several developments including: the Peninsula and Gravity developments in Franklinton; the Grandview Crossing project on Dublin Road; the Arlington Gateway development in Upper Arlington; the Hamilton Quarter development in New Albany; the Front & Fulton project in the Brewery District; and the Astor Park development next to the new Lower.com stadium.
Some of those spaces have already found tenants, suggesting that new spaces will thrive while older ones struggle.
“New speculative office space continues to break ground, and that’s happening for a reason: Employers are using new office space to attract and retain talent,” said Sam Stouffer, research manager for the Columbus office of the real estate firm JLL.
“This flight to quality is more than a trend; it’s the norm,” he added. “We expect that to continue.”
In recent months, for example, Chipotle established its second headquarters outside California in a new corporate building in the Arena District, occupying nearly 100,000 square feet. BMW Financial Services has committed to taking about 120,000 square feet of new offices at Grandview Crossing. And the Peninsula office development has attracted two major tenant commitments: the engineering firm Burgess Niple and accounting and consulting firm Deloitte.
While those new offices are being leased, traditional office space, especially around the Ohio Statehouse, sits empty. Four Downtown towers – Continental Centre, Chase Tower, the Fifth Third Center and Miranova Corporate Tower – are at least 60% vacant, according to the real estate firm Colliers.
“I have no idea what the future holds for Downtown towers, but the office market overall is quite active,” said Andy Weeks, executive vice president of Vantrust Real Estate, which has developed new office space in the Polaris and Dublin areas in the past few years.
“We signed 100,000 square feet of office leases in 2021,” Weeks said. “When you talk about new Class A office space in suburban mixed-used environments, it’s very desirable now.”
A close look at new office leases this year, however, raises two long-term concerns for the market.
“New speculative office space continues to break ground, and that’s happening for a reason: Employers are using new office space to attract and retain talent.” Sam Stouffer Research manager for JLL
alderman in Milwaukee, he compares the local Chuck E. Cheese to ‘something out of a Quentin Tarantino film... there is alcohol and pistols being brandished,’ “the study said.)
Unlike some of its counterparts in the competitive and fast-evolving children’s entertainment sector, Chuck E. Cheese has worked to modernize its amusements and operations.
The company moved away from its traditional paper tickets — the paper stock of which cost $6 million to $7 million annually — to an e-ticket platform. It releases albums of Chuck E. Cheese songs on Spotify and is adding digital dance floors.
The company also started expanding its business beyond its physical play places. When the COVID-19 pandemic shut down locations and stay-at-home orders boosted demand for food delivery, Chuck E. Cheese opened a ghost kitchen called Pasqually’s Pizza & Wings (named for one of the members of the animatronic rodent’s band).
Frozen Chuck E. Cheese pizza can now be found at Kroger stores, and parents can buy birthday party packages of balloons, pizza, party bags and cake to celebrate at home. (Birthday parties at Chuck E. Cheese locations remain a big business — the company says it hosts 500,000 birthday parties a year in the U.S.)
A failure to adapt to trends is what ultimately led to the downfall of a Chuck E. Cheese contemporary, Discovery Zone.
The indoor play place company was at the top of its game in the early 1990s. It was a Wall Street darling that expanded from eight stores to more than 300 and seemed poised for greater things after it got the backing of the wildly successful video rental firm Blockbuster.
Discovery Zone acquired its biggest rival and bought out franchisees. But revenue didn’t increase in parallel with the company’s sprawling network of locations. There were too many Discovery Zones near one another — or smaller rivals — which only heightened competition.
Parents got bored while their children played at the facilities, and the original concept of an indoor playground barely changed throughout the company’s lifetime, despite technological advances and the advent of video games, making repeat visits less appealing. The company also faced the daunting challenge of how to churn out revenue during weekday school hours and expand its customer base beyond young children. During evening hours, some Discovery Zones turned into nightclubs for teens or offered babysitting services in its stores.
In 1996, the company filed for Chapter 11 bankruptcy protection. Months later, the chain started closing dozens of locations. In 2001, after a 12-year run, Discovery Zone shut down completely.
Chuck E. Cheese took advantage of its competitor’s struggles. It purchased 15 Discovery Zones during a time when the trends pointed toward physical play such as zigzagging Skytubes and ball pits, Mckillips said. Those locations were combined with Chuck E. Cheese’s menu and games and rebranded under the Chuck E. Cheese name.
But even as Discovery Zone faded, additional competitors emerged. New family fun centers came on the scene, and in 2004, the first Sky Zone opened, sparking a nearly two-decade boom in trampoline parks.
A 2019 attempt to take Chuck E. Cheese’s parent company public again fell apart, and in June 2020, the chain filed for Chapter 11 bankruptcy protection after it saw prolonged store closures during the pandemic. Pre-pandemic competition had also emerged from other active play companies, including trampoline parks, laser tag facilities and Dave & Buster’s.
Mckillips, who joined the company in January 2020, has spent much of his tenure dealing with the twin chaos of the pandemic and the financial restructuring.
“The market conditions are something that we’re dealing with like every other family entertainment company,” he said.
The chain emerged from Chapter 11 in December and still has more than 500 Chuck E. Cheese restaurants around the globe.
Part of the staying power, Mckillips says, is the likeability of Chuck E. Cheese himself, along with bandmates such as Mr. Munch, who looks like a cross between Mcdonald’s Grimace and Barney’s BJ, mustachioed chef Pasqually and avian musician Helen Henny. The characters, he said, are recognizable by generations of children and provide a constant in the midst of changing trends and attractions.
“It’s about the positivity that the characters bring,” he said. “It’s all about that celebration. These characters are having fun.”