Expect vacancies to fall and construction to rise in Indianapolis’ apartment market. But for renters, this Midwest market will remain a bargain.
Marcus & Millichap recently released its second quarter Indianapolis multifamily report. Marcus’ research found that apartment vacancies are expected to fall 10 basis points by the end of this year to a low 6.1 percent.
At the same time, Marcus & Millichap reported that developers will bring 2,700 new apartment units to the Indianapolis market this year. That’s up from the 2,000 new units added last year.
But even with all this activity, the average apartment rent in the Indianapolis market will remain significantly lower than in other major cities. Marcus & Millichap says that the average apartment rent should rise 3.7 percent this year, hitting $866 a month.
That is an increase, yes. But the average rent here still sits nearl $500 below the national average.
What is fueling the new construction and dropping vacancies in this market? Marcus & Millichap pointed to job creating and the steady flow of Millennials to Indianapolis. Strong employment in the tech sector is bringing many of these 20- to 34-year-olds to the market. This has inspired developers to bring new apartment projects to the citie’s CBD and some of its northern submarkets.
Builders have completed 2,000 apartment units or more each of the past five years in March of 2018, with much of this supply consisting of Class-A assets. During the first quarter of 2018, builders completed about 700 new apartment units.
Marcus & Millichap reported that investors in this market focused on new construction in downtown Indianapolis and areas in the Interstate-69 corridor, from its southern terminus to the municipality of Fishers. Most of these properties were pursued by investors from coastal markets seeking favorable yields, as average cap rates at in the high-5 to low-6 percent range.
