Indianapolis Getting More Populous

Steady employment growth in Indianapolis is fueling demand for the construction of more office space.
Indianapolis Office Market - Supply and Demand - 2015 Outlook

Indianapolis Office Market – Supply and Demand – 2015 Outlook

Steady employment growth in Indianapolis is fueling demand for the construction of more office space.

Research data from Marcus & Millichap shows that local employers have created more than 100,000 jobs in the metro during the last five years, including nearly 40,000 positions in office-using sectors. This year, total employment in Indianapolis is expected to expand by 23,000 payrolls, which accounts for a 2.4 percent year-over-year increase. Jobs in the area’s office-using sectors will grow by 3.9 percent with the addition of 9,000 positions, according to the firm’s 2015 market forecast.

Deliveries of new office space will total 150,000 square feet this year, up from 133,000 square feet in the prior 12-month period. The largest project scheduled to come online in 2015 is the 112,500-square-foot office facility built for local software firm Interactive Intelligence Group on the northwest side of Indianapolis. The company is expected to hire more than 400 employees by 2016. Meyer Najem and Lids also have buildings under development. Meanwhile, engine manufacturer Cummins is planning to locate its $30 million global distributions headquarters at the former site of the Market Square Arena in the city’s downtown area. The new building, scheduled for completion in 2016, will house up to 450 employees.

Indianapolis Office Market - Rent Trends - 2015 Outlook

Indianapolis Office Market – Rent Trends – 2015 Outlook

Shrinking office inventory, coupled with the limited amount of new space scheduled to come online this year, will push vacancy down to 12.3 percent—a 70 basis points decline from 2014. Over the last five years, office vacancy in Indianapolis has decreased by a total of 270 points.

However, even though there are few speculative developments already underway, the area’s office vacancy rate is expected to be hindered by the fact that some companies moving into new facilities through 2016 will in fact relocate from existing space in the metro.

This year’s rising demand for new office space will allow operators to register rent gains. Asking rents will climb 2.4 percent to $17.66 per square foot in 2015, following a 2.1 percent increase in 2014.

As for investment opportunities, out-of-state buyers continue to be lured by stability of the Indianapolis office market. Investors in this part of the country target properties that typically trade at cap rates of around 8 percent. Garden-style office facilities that sell for less than $10 million are available throughout the metro. The most attractive assets are located in Carmel and downtown, northeast and northwest Indianapolis. Property selection criteria could also expand to Westfield, with the completion of the Highway 31 improvement through Hamilton County this year.

Charts courtesy of Marcus & Millichap