Indianapolis’ office market continues to thrive, with Cushman & Wakefield reporting that the sector saw 96,949 square feet of positive absorption during the third quarter of this year.
At the same time, the market saw nearly 300,000 square feet of completed office product come online during the quarter, according to Cushman & Wakefield.
Some of the Indianapolis submarkets were stronger than others during the quarter, of course. The North/Carmel submarket was the greatest driver of net absorption during the third quarter, with 161,416 square feet of office space absorbed. Cushman & Wakefield reported that the Central Business District came next, with 20,525 square feet of absorption during the quarter.
As demand for office space increases here, so do asking rents. Cushman & Wakefield reported that the average Class-A asking rate currently in the Indianapolis region currently stands at $21.44 a square foot, while the average Class-B asking rate is $17.59 a square foot.
These numbers are no surprise to David Moore, managing director with Cushman & Wakefield’s Indianapolis office. Moore has more than 20 years of office sales and leasing experience, and has worked on more than 2,000 transactions totaling more than 7 million square feet.
It’s safe to say, then, that he knows the Indianapolis office market. And what he says today is a particularly strong one.
“This post-recession cycle we are in has been an elongated upcycle,” Moore said.
And the main difference in this particular hot cycle and most other strong office markets that Indianapolis has enjoyed in the recent past? There hasn’t been much new construction in this current strong period.
“It’s not a total absence of new construction, but there has been a much lower amount,” Moore said. “The new construction that there has been has had a strong pre-leased element to it. There has been very little 100-percent spec construction.”
What little new office construction there has been has popped up mostly in specific submarkets, such as downtown Carmel, downtown Fishers and a few other smaller locations, Moore said.
The limited amount of new construction isn’t the only trend that sets this office upcycle apart from others. Today, there’s an increasingy focus with new construction on the quality of the amenities that come with new buildings.
Developers are facing increased pressure to equip their new office buildings with amenities that wow potential new tenants.
“It’s not that tenants haven’t appreciated amenities in the past,” Moore said. “But today, tenants are more focused on these amenities and how they can help them attract workers to their companies.”
Moore said that developers and investors are spending a significant amount of money on amenities today, whether with new construction or when revamping existing office-building stock. This includes revamping common areas to a higher degree.
Developers are adding shared tech space, lounge areas, coffee shops and retail offerings to lobbies. They are designing open-ceiling concepts and offering tenants collaborative spaces throughout their buildings.
“Some people refer to it as a collission of hotel lobbies and office buildings,” Moore said. “What you’d find in your nicer hotels are the type of amenities you’ll find in office properties today, both downtown and in the suburbs.”
This is a trend that Moore doesn’t see ending anytime soon. That’s because it’s not just one type of tenants that are looking for these amenities, he said.
All office users want them.
“It’s not just tech companies who want cool-looking space,” he said. “Even accounting and law firms are looking for these features. They are seeking a Millennial-friendly, new-look space. That costs a lot of money to build, especially if you are building it from scratch. But people are choosing to do it.”
The high-end amenities aren’t limited to office common areas, either, Moore said.
“There is a big change in our market when it comes to the premises themselves, the tenants’ actual space,” he said. “It’s not just the common areas. The tenants are demanding a higher level of finish in all areas of a building. They want open spaces in their office areas, collaborative spaces. That want cooler looking spaces than what companies wanted in the past.”