The momentum has changed during the last 12 months in Indianapolis, says Jordan Klink, senior associate in the Indianapolis office of Marcus & Millichap Real Estate Investment Services.
And Klink isn’t alone. Commercial real estate pros doing business in Indiana’s capital city say that the number of new commercial leases, sales and developments are on the rise.
It’s a trend that Klink and others say is not slowing.
“I think that we are in a steady recovery,” Klink said. “Leases are getting done today without significant concessions. We are seeing a significant up-tick in investment activity during the last 12 months.”
A market on the rise
Like most Midwest markets, Indianapolis saw its commercial real estate activity slow in 2008, 2009 and 2010.
Part of the reason? Developers were busy putting out their own financial fires. They didn’t have the time or financial resources to concentrate on taking on major new projects.
Today, this has changed, Klink said.
“I would say that during the last 12 months, the momentum has clearly changed,” Klink said. “Developers are looking forward now rather than backward. They are planning for the next cycle, and that’s resulted in more optimism in Indianapolis.”
In Indianapolis, the amount of commercial supply has been down because the city didn’t see much overdevelopment before the country’s economic crisis began.
At the same time, low interest rates has made developing new projects more attractive, something that has fueled an increase in demand in Indianapolis. Investors have equity sitting in their bank accounts. Klink said that they are now looking for income streams and deals.
Much of the city’s commercial real estate stock is going through a type of reset. Klink says that much of the inventory that was sitting vacant in Indianapolis was empty because the buildings’ owners had to charge rents that were too high for the current market. Such owners had bought these properties before the recession caused a drop in rents.
These properties today often change hands through traditional or short sales. The new investors who take over the buildings buy them for lower prices. This means they can charge the lower rents that are typical of today’s market. This helps them fill the empty space.
“The base gets reset, and the investments fill the properties up at market rents pretty quickly,” Klink said.
Industrial gaining strength
Michael Weishaar, senior vice president and principal in the Indianapolis office of Cassidy Turley, specializes in industrial. And he’s seeing steady improvements in this market in the city.
The industrial market is so strong, that speculative building has returned to it, Weishaar said. He said that the Indianapolis-area industrial market has seen more spec development during the last six to nine months than it had in the previous three years.
“Indianapolis is fortunate to have developers who are either based out of this city or who have close ties to it,” Weishaar said. “When they saw the downturn several years back, they played it smart. They did not overbuild. They created a situation in which they able to build spec because the inventory is down.”
According to Weishaar, the industrial vacancy rate in the Indianapolis market stood at 3.3 percent at the end of last year.
“With the vacancy rate there, it kind of screams that you need to be doing some spec development,” Weishaar said.
At the end of last year, five industrial buildings were either under construction or soon-to-be-finished. The buidings, when all are completed, will bring 3.2 million square feet of new industrial space to the market.
What makes the Indianapolis area an attractive one for industrial projects? Weishaar says that the easy answer is location: Indianapolis sits in the middle of the country, putting it in close proximity to most of the country’s population.
At the same time, Indianapolis has a reputation as being a pro-business state.
“Indianapolis always winds up on the lists of the most attractive buyers and tenants out there,” Weishaar said. “We are always on the short list of places where they want to relocate.”
Weishaar points to the meetings he held in March with a group that is considering moving a distribution center from the West Coast to the Indianapolis area.
“This is no fly-by-night company,” Weishaar said. “This is a company that has been in business for a long time. It’s a good company making good decisions, and it has decided that Indianapolis is an area of significant interest to them.”
