Mask mandates in the Indianapolis area have been revoked. Vaccines for COVID-19 are widely available. And the FDA has approved the Pfizer vaccine for children ages 5 to 11. But one thing that hasn’t happened yet in the Indianapolis market? Most employees still haven’t returned to the office.
And that continues to throw the region’s office market into uncertainty.
That’s the takeaway from Colliers’ third quarter Indianapolis office market report. As Colliers says, many companies had planned to bring their employees back to Indianapolis’ office buildings shortly after Labor Day. Then the more contagious delta variant hit, causing COVID-19 cases to rise here and across the country. That scuttled the back-to-work plans of many companies, and the Indianapolis office market remains in a sort of limbo today.
Today, then, employers are considering when they’ll bring workers back to the office and whether they’ll do it on a full-time or hybrid basis, letting employees work part of the week in the office and the rest of the time remotely. This has caused employers to evaluate just how much office space they’ll need in the future.
Despite this uncertainty, Colliers did find good news in its latest look at the Indianapolis office market. First, sublease activity decreased in the third quarter for the first time since the first quarter of 2020. And leasing activity in the local office market increased by more than 50 percent in the quarter.
Negative absorption still boosted the market’s overall vacancy rate, but it did so at a slower pace. As Colliers points out, office vacancy rates remain far below the peak they hit during the Great Recession in 2008 and 2009.
The numbers in Colliers’ report do tell the story of an office market facing plenty of uncertainty. The local office market’s vacancy rate rose slightly in the third quarter to 17.9 percent compared to a rate of 17.7 percent in the second quarter of this year. Asking rents took a slight dip, too, falling to an average of $22 a square foot in the third quarter of this year from $22.12 in the second quarter.
An interesting trend is the decrease in sublease activity that Colliers reports in the third quarter. This doesn’t mean, though, that subleases aren’t still an important factor today in Indianapolis’ office market. As Colliers reports, five of the 20 largest year-to-date office transactions have been sublease signings. The average rental gap between sublease and direct asking rents is $4.25, Colliers says.