Indianapolis has long been a strong industrial market. That hasn’t changed today, even as the city contends with the COVID-19 pandemic.
How resilient has the Indianapolis industrial market been? Midwest Real Estate News spoke with Cam Kucic, senior vice president of industrial with the Indianapolis office of Colliers International, about the state of industrial in the Indianapolis region today. The not-so-surprising news? Industrial activity remains strong throughout the market, despite the impact of the COVID-19 pandemic.
Of all the commercial sectors, industrial has performed the best during the pandemic. Why is that?
Cam Kucic: A lot of industrial’s strength today is due to the shift in the way people ae shopping during the pandemic. You and I are getting more deliveries than we did before COVID. Ecommerce and online shopping are only continuing to grow. There is this demand for companies to deliver products to people’s homes on a daily basis. Industrial really is the new retail. Instead of going to the store and buying products, people are saving time and ordering online. We are relying on the industrial supply chain to get the products to them.
There are more deliveries today from grocery stores. Grocers like Kroger are investing quite a bit of money in facilities across the country. Everyone is trying to figure out how to get products to people’s front doors like Amazon.
Demand for warehouse space has certainly increased across the country during the pandemic.
Kucic: Because of COVID, everyone is looking at inventory. How long do we need to hold inventory? If a shortage happens again, we need to be well-supplied again. That increases the demand for industrial space, too.
The industrial market is thriving nationally. But how strong is it in Indianapolis?
Kucic: The industrial market in Indianapolis is very healthy. It is expected to surpass the record level of leasing activity we saw in 2019. During COVID, no construction in Indianapolis was stopped. Construction was considered essential. Some contractors might have had delay issues, but nothing stopped. If something was in progress, it kept going. Most of the new construction in the industrial market here has been on a spec basis. When these hit the market, it caused the industrial vacancy rate to jump up a bit. But that is just temporary. Developers are still bullish. They wouldn’t be building so much if absorption wasn’t following it. Asking rents have increased, too.
Is there anything unique to the Indianapolis market that makes it such a good one for industrial?
Kucic: You can reach 75 percent of the United States and Canada from Indianapolis within a one-day drive. We have the second-largest FedEx World Hub. We have one of the lowest costs of doing business. We are a right-to-work state. Those ae just some of the things that help our market. Indiana really makes it easy. Then there is the location, of course, and real estate is location, location, location.
It sounds like a good deal of the new industrial construction is spec.
Kucic: Of the 9.5 million square feet of industrial space built this year, 7.5 million has been spec. Only about 2 million square feet has been build-to-suit. We are right on track to follow 2019 if not surpass it.
I only see the growth of ecommerce continuing. Most of everything we’re seeing this year to date have been companies that are new to the market or expanding operations. We really are a spec market. When people are looking for spec space, we can meet their demand immediately. We have so much spec product out there, we are an attractive market for companies looking for space immediately.
You actually see that some of the space quickly turns to build-to-suit. You see a lot of preleasing in these buildings. Buildings are often getting leased before they are completed.
What features or amenities are companies looking for in industrial space today?
Kucic: Trailer parking is a must. You are seeing some spec developers coming out with 40-foot clear heights. Indianapolis is just starting to see this happening. Is it a need today? I’m not sure it is, yet, but it will be as we run out of ground. As with any other city, there does come a time when you have to start building up, not out.
We don’t talk about labor as an amenity, but we have a great workforce here. Companies aren’t just interested in building amenities, they also need to find an area with a good supply of available labor. They need labor.
I know it’s difficult to predict the future, but how strong do you think 2021 will be for the Indianapolis market?
Kucic: If everything continues as today, even if something COVID-related happens, I do think the industrial market will be strong in 2021. Even if something does happen with COVID, that will shift everything more toward the industrial market again. People will be relying on the industrial supply chain to meet whatever their needs may be. It’s all about helping people get what they need. That’s why industrial will be so strong next year and in the future.