Resilient. That’s a good way to describe the Indianapolis commercial real estate market throughout the COVID-19 pandemic. And certain commercial sectors – industrial and multifamily – have been more than resilient. They’ve been strong.
And the good news? Commercial real estate professionals serving this market say that they expect sales, leasing and development activity to remain strong throughout the Indianapolis market as 2021 slips into 2022.
Indianapolis, they say, just has too many positives to see a major slowdown in commercial real estate activity anytime soon.
Andrew Held, president and chief operating officer of Indianapolis’ Birge & Held, which specializes in the multifamily sector, said that the apartment market has been especially strong in the Indianapolis suburbs.
The only sluggish area for multifamily today? Held pointed to downtown Indianapolis, which isn’t surprising. Like many cities across the country, the pandemic has had a bigger impact on Indianapolis’ urban core than it has on its suburban areas. Many companies have not yet brought workers back to the office, leaving downtown emptier during the day. This has reduced demand for apartment living in the city’s urban center.
“The downtown got hurt the most with the shutdowns and with businesses leaving,” Held said. “The restaurants downtown were impacted by COVID, too. So downtown has been a little slower to come back. The bright, shining star in Indianapolis has been the performance of suburban multifamily. That sector is as strong as it’s ever been.”
Downtown’s struggles, though, are temporary, Held said. The city’s center just holds too many amenities to not bounce back, he said.
“There is still a huge draw to living in downtowns and certainly in downtown Indianapolis,” Held said. “There is so much down there in terms of activities and sports, restaurants. All that is coming back. It is just taking a little more time. This is not a permanent issue for downtown.”
The immediate fate of the downtown apartment market, though, does depend on what the city’s larger employers do, Held said. When will they decide to bring their employees back to the office? And will they move to hybrid work schedules in which employees work from home some days and in the office others?
Until these big employers start filling their downtown offices with workers again, Held said, downtown Indianapolis’ apartment market will see slower leasing activity.
“A lot of those people working downtown were living downtown, too, for the convenience,” Held said. “It will be interesting to see how the downtown office situation plays out. But I do think downtown will come back. Indianapolis has a great downtown.”
While downtown’s apartment market remains sluggish, the suburban Indianapolis multifamily market is booming. Held said that renters here are looking for suburban areas that boast strong schools and convenient access to wherever they are working.
Newer suburban multifamily apartment developments are coming with a greater number of amenities than these projects once featured, Held said. Some of the newer suburban projects include onsite fitness centers, pools and other perks that were once seen mostly in urban multifamily projects.
“You are getting all the bells and whistles you’d expect with a high-end, urban building,” Held said. “A lot of older suburban product did not focus as much on community amenities. That is now changing. That makes these suburban projects more appealing to people who once rented downtown but are now moving out.”
While new urban multifamily projects tend to attract more attention, there has always been a draw to suburban apartment living, too. As Held said, many urban renters move to the suburbs as they get older and start their own families. They want the additional space that the suburbs offer. They might move to suburban locations to take advantage of highly rated public schools.
But whether it’s urban or suburban, Held said that all indicators point to another strong year for Indianapolis’ multifamily market in 2022.
If this sector could do well during the worst months of the pandemic, there’s little reason to think it will slow down in the coming months.
“Apartments are an essential need,” Held said. “Food and shelter are the keys to existence. People need housing. That is the primary reason why the multifamily sector has been as strong as it’s been during the pandemic. Regardless of what is going on in the world, people need a place to live.”
There’s also the issue of a lack of supply. As Held says, during the last 10 years, the country has not built enough housing to meet demand. There is especially a lack of affordable housing, both in the multifamily and single-family markets.
The country needs to add more housing options, Held said. And it needs to add more apartment units and single-family homes that more of its residents can afford.
“This has been a 10-year issue that has been bubbling up. Now it has become a critical issue that needs to be addressed,” Held said. “For owners, this high demand has been great. We are seeing occupancy levels that we’ve never seen before, demand that we’ve never seen before. But this is all driven by the fact that we don’t have enough affordable housing in Indianapolis or the United States. This has to be addressed.”
Held said that government incentives and tax credit programs have helped. These financial incentives make it easier for developers to earn money when developing affordable housing. Inflation, though, is another challenge for developers: Financial incentives need to keep pace with the rising costs of labor and materials, Held said.
“The kind of inflation that we are seeing, whether you think it is monetary policy or supply chain-related or a little of both, it is going to be an issue,” Held said. “It will pose a real problem to creating more affordable housing.”
Held said that he does see some positive signs when it comes to affordable housing. He said that the supply of new affordable housing, in Indianapolis and the rest of the country, will increase during the next several years, with several affordable projects coming online in 2023 and 2024.
“The next couple of years will be tough,” Held said. “There isn’t as much coming. But if you look at the projects that are coming down the road, they will help. This is an issue that can’t be resolved overnight. It takes time. Interest rates, inflation and supply issues, all those things can slow that progress. But I do think that during the next three to five years, you will see a good ramp-up in delivery. The market will ultimately try to meet the demand that exists. It is clear the demand for affordable housing is there. It’s a matter of getting projects done.”
Resilient all over
Multifamily isn’t the only commercial sector holding its own today in the Indianapolis market. James Winkler, director of market research with the Indianapolis office of Colliers, said that other sectors, especially industrial, are also thriving in this market.
Winkler said that the Indianapolis industrial market continues to perform well and has done so throughout the pandemic. And this market shows no signs of slowing, he said.
“Our industrial market has been established for years,” Winkler said. “It continues to rank in the top 10 in the country when it comes to construction and growth. It’s no surprise that industrial is our strongest sector today.”
Why has Indianapolis’ industrial market been so strong throughout the pandemic? Winkler points to the rise in ecommerce activity. Before the pandemic, customers were comfortable ordering items online. The pandemic only accelerated this, causing even those customers who might have been hesitant to embrace online ordering and delivery.
This increased the need that companies had for distribution centers. Indianapolis, with its location in the center of the country, became a desirable market for companies that wanted to build more warehouses so that they could ship their products to more customers in less time.
“Logistically, we are a one-day drive to three-fourths of the U.S. population,” Winkler said. “Logistics users love that. We are also home to the second-largest FedEx air hub in the world, something that doesn’t get talked about enough. We are also fortunate to have a business-friendly environment in Indianapolis. We consistently rank high for infrastructure and fiscal stability.”
With demand for new industrial product soaring, Indianapolis-area developers are adding plenty of spec industrial product to the market, Winkler said.
This might be concerning if demand for this space wasn’t so strong, he said.
“So many of these buildings are ready here when in other markets users might not find all that space available,” Winkler said. “Here, we can get a tenant to move in right away. That has caused us to win some deals that we might not have won if it had not been for the ready availability of those buildings.”
Don’t expect industrial construction to slow anytime soon. Winkler said that at the end of the third quarter of 2021, Indianapolis had the third-most industrial buildings under construction in the country.
“That goes to show how much developers are interested in Indianapolis,” Winkler said.
The fact that ecommerce activity is only expected to increase also bodes well for Indianapolis’ industrial market. As Winkler says, a good slice of those people who weren’t comfortable with ordering products online are now.
“For me personally, I have upped my purchasing online,” Winkler said. “During the pandemic, people found an alternative to shopping in stores. I think they will stick with that alternative. If anything, the pandemic accelerated this trend as more people have gotten used to online ordering.”