The Market

Indianapolis, Indiana

Overall the office market in 2019 remained active and steady but with distinct preferences for tenants desire to lease in the CBD, Carmel and Fishers submarkets.

Much of the activity has been either companies occupying newly built office buildings in amenity rich locations or backfilling large vacancies created from corporate downsizing.

As previously reported, construction costs continue to impact landlord returns and in some cases, their ability to complete deals without negative returns.

Amenities and workplace environment remain key factors in the leasing decision tree as employee retention and attraction in this tight job market are a primary focus of tenants.

Jeff Harris, SIOR

President

An Active Market But No Net Gains From An Overall Market Perspective.

2019 was active with approximately 2.8 million square feet of new leases. However, that could not overcome a larger reduction in space leased as the year end net absorption was <975,000> square feet.

Companies either leaving the market or downsizing, such as Wiley, State Farm, Pearson and Fifth Third Bank, are a few examples.

However, rents continue to increase in the high occupancy Class A buildings with the rest of the market following suit to maintain a justifiable differential between the top tier buildings and those in lesser tiers.

The flight to new or very well maintained Class A continues along with companies leasing less space due to IT efficiencies and office sharing designs.

Recent new construction has focused on smaller 40,000-80,000 sq. ft. office buildings in the downtown Carmel and Fishers markets. Strategically placed, infill and redevelopment projects continue in many submarkets, as well.

Total Market Statistics

Metrowide Statistics

Office Leasing

Absorption: Measure of Demand in Square Footage for Office Space (All Office Space)
Total Net Absorption for All Markets Year End 2019 = (975,000)

*increasing from (647,000) at mid year 2019

The breakdown of total absorption between the Suburbs and the CBD was:
Suburbs: (867,000)
CBD: (108,000)

CBD Absorption/Deliveries/Vacancy Year End 2019

Citywide Statistics

All Classes of Office Space

Office Space Statistical Changes First Half and Last Half and Year-Over-Year

2Q19 vs. 4Q19

4Q18 vs. 4Q19

CBD Net Absorption Year End 2019

Metro Indy Overview

Vacancy
Remained flat at 23.72% in the suburbs at the end of Q4 2019.
CBD vacancy increased slightly to 14.02% for Q4 2019 up from 14.00% at the end of Q2 2019.
Net absorption was weak market-wide with <867,000> sq. ft. in the suburbs and <108,000> sq. ft. in the CBD for Year End 2019.

Rental Rates (Building Classes A & B Combined)
• Landlord concessions such as free rent and relocation allowances are moderating as construction costs outpace inflation. Landlords are overcoming higher construction costs through increased rental rates even with the negative absorption market-wide.
• Most buildings are increasing asking rates as the premier Class A buildings increase their rates due to high occupancy rates.

New Construction (Building Classes A & B Combined)
BW Development announced The Ellipse. A 46,000 sq. ft. speculative office building in Fishers.
Agora at the Proscenium, a 100,000 sq. ft. speculative office is under construction in Carmel.

Sublease Space
Inventory of available sublease space city-wide has shrunk from 1.08% at year end to .79% mid year.

Investment Sales
Crosspoint Plaza One sold for $8,800,000 ($62.85/sf) to Tempus Realty Partners.
Lids sold its corporate headquarters to a group headed up by Guggenheim Insurance for $18,250,000 ($121.00/SF).

Historic Net Absorption

Available Space