Cushman & Wakefield Forecasts Another Banner Year for Indianapolis Commercial Real Estate


INDIANAPOLIS, February 16, 2017 – Cushman & Wakefield’s 35th annual The State of Real Estate® Indianapolis event highlighted the overall strength of the metro region’s industrial, office, multi-family and retail sectors for an audience of industry, business and civic leaders at the Murat Theatre at Old National Centre.

Highlights of the program include:

Industrial Market

According to Senior Director Bryan W. Poynter, SIOR, CCIM, the Indianapolis industrial market shattered records in 2016, with net absorption of 8.3 million square feet. Additionally, 11.2 million square feet of new leases were signed, which is more than the 2014 and 2015 totals combined. The market saw its lowest vacancy rate in 36 years at 3% – down from 5.8% at the end of 2015. The market was tight heading into 2016 and tightened even further throughout the year as historic leasing demand dramatically outpaced new supply. After no new buildings were delivered in the third quarter of 2016, the fourth quarter produced four newly constructed industrial warehouses totaling 635,000 square feet. Twelve speculative projects totaling 6.3 million square feet are expected to be delivered in 2017.

Office Market

Growth in the Indianapolis office market is accelerating faster than at any other time in the last 25 years, according to Managing Director David A. Moore, SIOR, CCIM. The market posted 8,391 square feet of positive absorption in the final quarter of 2016. This marks the 11th consecutive quarter in which the market posted positive net absorption. The big news in 2016 was Salesforce.com’s 200,000-square-foot lease at the former Chase Tower. Salesforce Tower, the tallest building in Indianapolis, is now anchored and named by the technology company. Market Tower is another that has gone through a transformation to unleash higher leasing performance. Investors are interested in these changes that are driving historic acceleration of different types of new landlords in the market. Landlord 2.0 is more likely to be privately funded and entrepreneurial, focused on the long-term with planned capital investments. These attributes make them nimble and a perfect fit for rapidly changing tenant expectations. New construction of office properties is up three-fold from this time last year. However, new construction will not present a problem because only 18% is multi-tenant office space.

Multi-family Market

According to Director Scott Pollom, CCIM, market-wide average occupancy stood at 93.2%, extending the longest period of occupancy sustained at 93% or higher in the past decade. Downtown Class A lead the way with 96.9% occupancy, but Castleton, Brownsburg and Zionsville were not far behind. Year-over-year rent growth was 4.8%, up from 2.2% last year. Demand from Millennials and Baby Boomers bolstered Downtown Class A rent growth to 8.5% by year-end, while Class C units (those built in the era of 1960-1980) also saw rent growth at a healthy 3.8%, mainly due to recent renovation and repositioning projects that were developed in the age of cheap capital. All the good news about increased occupancies and rent growth comes at a time when it would have seemed logical to predict just the opposite, given the very long run of growth in the multi-family market, as evidenced by the number of new units delivered in the past several years. With 3,000 new units delivered in 2016 and another 3,700 units expected to come online in 2017, most of the units will be located downtown and in the northern suburbs.

Retail Market

Indianapolis has “Cool Streets,” including Mass Ave., Fountain Square, Virginia Ave., So Bro and Broad Ripple, according to Senior Director Jacqueline Haynes, CCIM. Last year, Cushman & Wakefield produced an in-depth report on Cool Streets across North America, measuring several metrics to better understand what makes a street cool, including walkability, affordability, art and culture, night life and overall demographics. Indianapolis’ attributes, as compared to other markets, are right in the mix. Restaurants are a major occupier of Cool Street space. In May of last year, the U.S. Commerce Department reported that for the first time – restaurant sales eclipsed grocery sales and accounted for 12% of all retail sales – the highest level since the Commerce Department began tracking this metric 30 years ago. Cool Streets influence the entire retail segment. Fortunately, new developments such as Hendricks’ redevelopment on East Mass Ave and Browning Investments mixed-use development, The Coil in Broad Ripple, help ensure that Indianapolis’ Cool Streets are expanding and becoming denser. Additionally, the market was recognized as one of America’s hottest food cities by Zagat. More than 20 new restaurants opened in the last quarter of 2016, and several new concepts are expected to follow this year.

Capital Markets

The pace of industrial deal volume in 2015 has somewhat overshadowed otherwise strong trends in 2016, according to Executive Director Jeff Castell, SIOR, CCIM. For example, 2016’s $712 million in deal volume (including 14.8 million square feet) was off 35%, and this tracks closely with the national decline of 32%. However, 2015 recorded a 40% increase in deal volume over the prior year and was likely not sustainable. Despite a reduction in transaction volume, pricing has not reflected any signs of weakness, as core cap rates continued the compression trend during 2016 with a virtually insatiable investor appetite for high-quality assets. 1031 Exchange investors continued their influence on the industrial market with multiple acquisitions, including First Industrial’s dispositions of its Park Plaza and Fairfield Business Park multi-tenant office/showroom assets. Expect asset pricing for core product to level off this year. A rising-interest-rate environment will have a moderate impact on pricing of all other industrial assets, offset largely by the market’s strength. Continued demand for single-tenant, net leased assets is expected, and, as a top 25 U.S. industrial market with strong underlying fundamentals, investors continue to cite the favored status of central Indiana for accomplishing superior risk-adjusted industrial returns.

In 2016, office investment witnessed a monumental 51% volume increase over the prior year. This dramatic increase was in response to a national decline of 11%, according to Executive Director Jeff Castell. To be fair, three mega deals comprised nearly two thirds of the $662 million in volume. For the Downtown submarket, $260 million was attributable to PNC Center, with 16 floors totaling 636,000 square feet, and Salesforce Tower, with 48 floors totaling 1.1 million square feet. In the suburbs, Duke’s disposition of eight buildings totaling 1.2 million square feet at Parkwood Crossing contributed another $163 million. This year, upward interest rate movement is expected to influence cap rates. U.S. office investment also will see a majority of transactions being executed in secondary markets as investors take pause over record high prices and financing challenges in these major markets. And acceleration of single-tenant asset trades, particularly in suburban office assets, is expected.

With multi-family investment sales, average cap rates for Class A assets compressed in 2016 to 5.8% from 6.1% in 2015 – not even close to the sub-4% cap rates either coast reports but still a respectable achievement, according to Mr. Pollom. In 2016, the market saw pricing at and above the $100,000-per-unit mark for the top tier of Class A properties, with steady increases in pricing for B and C assets in certain sub-markets.

The State of Real Estate® Indianapolis event is widely recognized and has grown to include 1,200 of the industry and business community’s top executives. Chris Yeakey, Managing Principal for Cushman and Wakefield’s Indianapolis office, hosted the event, and Gerry Dick, anchor and creator of Inside INdiana Business and president and managing editor of Grow INdiana Media Ventures, LLC, served as master of ceremonies. Dick interviewed Indiana Governor Eric Holcomb about the city’s opportunities and challenges, incentives to attract and retain companies and talent, and the impact of tech growth.

About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 43,000 employees in more than 60 countries help investors and occupiers optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.

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