Jimmy Cohoat, senior vice president with the Indianapolis office of Colliers, has closed more than $600 million in transactions since joining the brokerage as an industrial specialist in 2014. It’s safe to say that Cohoat knows the Indianapolis industrial market.
And his views on the industrial sector in Indianapolis and its suburbs? Demand is still high for industrial space. Investors are still sinking their dollars into industrial assets. And developers aren’t shy about bringing new industrial space to the Indianapolis market.
Rising interest rates, supply chain disruptions and persistent inflation are challenges. But Cohoat says that the Indianapolis industrial market is strong enough to overcome these hurdles.
Midwest Real Estate News spoke to Cohoat about the long-running strength of the Indianapolis industrial market. Here is what he had to say.
Is demand still high for industrial space in the Indianapolis market?
Jimmy Cohoat: We are still seeing a lot of industrial space under construction. We have about 28 million square feet of industrial space under construction now, which is a lot for a market of our size. The demand is still tracking with that. In 2021 we had record construction, leasing and absorption numbers in our industrial market. We are on the same kind of pace this year.
We’ve also signed about 21.5 million square feet of new industrial leases through the third quarter in this market. That is slightly higher than where we were at the same time last year, which was a record year. The fourth quarter so far has remained active with tenant demand.
Why has demand for industrial space remained so high for so long?
Cohoat: The continued shift to ecommerce and getting customers their desired goods quicker has made an impact on the industrial sector. The Amazon effect is real. Everyone is competing with it. We continue to see more not just national distribution hubs but regional hubs to get customers their products as fast, conveniently and cost-effectively as possible.
How have the changes consumers made during COVID continuing to fuel industrial demand?
Cohoat: It’s been an additional shot in the arm. Everybody had to get used to shopping online. It was the only way to get stuff for a short period of time. Then people realized how convenient it was to shop online. A lot of those habits have stuck since COVID.
What makes Indianapolis such a good place for industrial users?
Cohoat: Indianapolis benefits from being centrally located in the country. We have a great interstate system. Additionally, compared to many of the larger coastal markets, we are relatively cost-effective here. Rents have grown quite a bit here, but compared to some of those coastal and larger markets, we are still relatively inexpensive. We have the opportunity to push rents and still be below some of our competing markets, which benefits Indianapolis.
We have a lot of flat land here, too, and a business-friendly environment. That continues to attract companies to Indianapolis.
Are there any major industrial developments taking place now that you think will have a significant impact on the Indianapolis market?
Cohoat: Walmart is well-documented to be planning a 2.2-million-square-foot hub on the east side of Indianapolis. They are in the process of working on that. That will be one of if not the largest industrial building in the market. Then we have a number of other million-square-foot speculative buildings, some of which have been pre-leased, coming to the market. We are seeing a jump in larger tenants coming to Indianapolis compared to what we saw pre-pandemic.
Why are these larger tenants coming to Indianapolis?
Cohoat: One, we are delivering all the construction. Developers are doing a nice job of getting sites entitled and maxing out these sites to be as efficient as possible. Then, as ecommerce continues to grow, companies need space fast. Indianapolis can accommodate these companies. It’s a bit of the old if you build it, they will come situation. And we are building a lot of it.
Is there enough industrial product in the Indianapolis market to meet demand?
Cohoat: We are doing a nice job of supplying enough product to meet the demand. We have a nice balance at the moment. We are probably a little light on the smaller- to mid-size product. That type of product is getting gobbled up at a good pace. There is room for more of those buildings to come online and get absorbed.
Is industrial often getting pre-leased even before the buildings are complete?
Cohoat: Yes. A good number of buildings are pre-leased before construction is complete. They might start off as speculative space but then get leased before construction ends. The larger spaces typically end up as single-tenant buildings. There is a lot of pre-leasing in that end of the market. Sometimes companies will pre-lease the space and expand the building from 800,000 square feet or 900,000 square feet to 1 million or 1.2 million square feet. They are taking a building and expanding it before they get into it.
What impact have rising interest rates had on demand for industrial?
Cohoat: Rates have had less of an effect on the demand side. Demand remains strong and it will continue to be strong throughout the balance of the year. You never know what will happen in 2023. That’s what everyone is trying to figure out. On the development side, rising rates are making conversations tougher. It can be hard to convince lenders to loan money. Construction costs are high. Deals are harder to pencil in during this current interest-rate environment. Developers are taking a step back and making sure to do their due diligence and find quality sites.
There is a lot of uncertainty in the economy today. What do you think this will mean for the industrial sector in 2023?
Cohoat: I think 2023 will be another strong year. If you look at 2021 and 2022, they are basically the best two years in the history of industrial leasing. To compare every year to the best years would be unfair. If you compare 2023 to how we’ve done historically, next year will probably be above the average. We will have the industrial product available. There are plenty of positives to doing business in Indianapolis. That will keep our market strong and healthy.