One of the most resilient commercial real estate markets in the country. That’s how CRE professionals working here describe the Indianapolis market.
It’s easy to see why: Indianapolis has developed a reputation as a business-friendly city with reasonable taxes, one that is attractive to both new businesses and investors looking for a safe place to park their dollars.
That stability is important today. Higher interest rates have been a challenge, slowing the pace of commercial real estate development and sales throughout the country. Investors and developers, then, are looking for affordable, predictable markets, and Indianapolis is a good example.
Steady in the multifamily sector
Indianapolis’ multifamily sector is a good example. It is holding steady even as interest-rate challenges and rising construction costs hit it.
Josh Caruana, first vice president/district manager for Indianapolis with Marcus & Millichap, said that the Fed’s decision to no longer raise its benchmark interest rate has provided stability in the Indianapolis multifamily market.
Stability, while not as good as falling interest rates, is a necessity to keep commercial sales activity flowing, Caruana said.
“Even though interest rates are at elevated levels compared to two or three years ago, the stability is good for the market,” Caruana said. “That rapid increase in interest rates made it very difficult for buyers and sellers.”
Now that rate stability has returned, Caruana says that he expects investment sales activity in the multifamily sector to slowly increase.
And it’s not just rate stability that will help boost sales activity. Caruana said that the Indianapolis multifamily market has long been a strong one, and that makes apartment developments here attractive assets to investors looking for a safe home for their dollars.
“The Indianapolis market has been one of the most resilient not only in the Midwest but in the country,” Caruana said. “It consistently ranks in the top five or 10 for rent growth. In some quarters, it’s been number one for multifamily rent growth.”
Even if interest rates remain the same, Caruana said, he expects multifamily sales activity to increase in the second half of 2024 and throughout 2025. If the Federal Reserve Board cuts its benchmark interest rate, he expects investment sales activity to pick up in the Indianapolis market to an even greater level.
Aaron Kuroiwa, senior vice president with the Indianapolis office of Marcus & Millichap, said that the key remains consistency: Investors want to know where rates are going to be before making any deals, whether they remain at their current levels or fall to lower ones.
“Investors are always looking for stability and predictability,” Kuroiwa said. “The challenge came when the Fed increased rates. Many investors will look at today’s rates and say that they are OK with them. They are willing to transact at these rates as long as there is stability. That is the main factor: They want predictability.”
Kuroiwa said that the Indianapolis multifamily market is also benefiting from an influx of investors who in the past did not have much appetite for investing in the Midwest. The growth of commercial real estate activity in the Sunbelt and smile states kept these investors occupied throughout the pandemic years.
Today, though, these investors are attracted to the consistent rent growth they see in the Indianapolis multifamily market. As Kuroiwa said, Indianapolis’ multifamily rent growth is consistently outperforming the rest of the Midwest, something that investors, including out-of-state ones, are noticing.
“We have a very experienced developer community in Indianapolis,” Kuroiwa said. “They did not overbuild in the apartment market here. We are very conservative in our pace of development. We are also an affordable market. The renter base here can afford our apartment units. It’s what allows us to continue with our consistent rent growth. We can raise rents and our renters can still afford the units. We are a slow, steady and consistent market. In a time in which there is so much uncertainty, that is very attractive.”
Caruana said that Indianapolis is also a business-friendly market with lower taxes. Not only is the city bringing in a steady stream of new businesses, it is also seeing population growth.
The demand for single-family homes also outpaces the supply. This means that some residents here are renting as they struggle to find a single-family home that fits their needs.
“Are we going to see some potential vacancy increases in the multifamily market here? Yes,” Caruana said. “But there is still more demand than there is supply.”
Certain submarkets are seeing more development and demand than others. Like many other Midwest markets, Indianapolis is seeing an influx of renters moving to its suburban areas. Kuroiwa said that suburban areas such as Carmel, Hamilton County, Greenwood and Franklin are seeing increasing leasing activity.
And when renters are seeking new apartment space what amenities top their lists of must-haves? Kuroiwa said that renters looking for affordable rental housing are more interested in clean, well-maintained space in a safe environment. They are not as interested in top-of-the-line amenity packages.
There is demand, though, for high-end product, too, from certain renters. These renters are seeking high-quality finishes and amenities such as well-appointed workout facilities and pool areas.
