CRE O Indiana

Cautious strength: Indianapolis CRE market set for a strong 2019

Cautious strength: Indianapolis CRE market set for a strong 2019,ph01
The Bottleworks District is a $300 million, 12-acre mixed-use development in Indianapolis on the northeast end of Mass Avenue. It’s just one example of the big new projects hitting the area.

Janice Paine isn’t shy about expressing her love for Indianapolis. Paine, senior vice president of brokerage for Central Indiana with Bradley Company, said that this key Midwest city offers plenty to companies: a centralized location, skilled labor force, a pro-business government and low expenses.

These are the reasons why businesses continue to set up shop in Indianapolis, Paine said. And they are the same reasons why Paine predicts another strong year for the commercial real estate market here in 2019.

“The market here has been very strong,” Paine said. “It is cautious, though, too. That is one of the things that makes Indianapolis and the Midwest such good places to invest. We tend not to overbuild like in other parts of the country. So, yes, our market has been strong for a long time. That’s because the growth here is based on solid fundamentals.”

And leading the way in the early stages of 2019? To no one’s surprise, it’s industrial.

As Paine says, Indianapolis has long been a top-performing industrial market. She says that will continue this year. Indianapolis simply has too many positives for industrial to slow, including its centralized location and strong highway access.

Combine that with a strong national economy and consumers who continue to want ever-faster delivery on the products they order online? It’s a perfect recipe for a local industrial market set to continue its boom times in 2019.

“We are a huge industrial market,” Paine said. “This market has been a top-performer every year. The industrial developments that are coming out on a spec basis, we will absorb them all. We have been doing that. Seeing all that spec development continually being absorbed is a great story.”

Paine says that the industrial sector is the only one that can continually absorb new product built on a speculative basis. As she says, you don’t see spec office or retail projects today.

But spec industrial projects? They aren’t slowing.

“We build it, and they seem to come,” Paine said.

Industrial isn’t the only sector that is thriving today in Indianapolis. The medical sector continues to grow as consumers seek changes in the way healthcare is delivered. Multifamily remains strong in Indianapolis, too, with a growing number of residents choosing to rent, many of them in an effort to gain an urban experience.

“Everyone keeps wondering when the multifamily market is going to peak,” Paine said. “But it seems that rents here keep rising. They keep building new properties. It keeps working.”

And the growth in multifamily? It is leading to growth in other sectors, too. Paine points to the self-storage business. As more people leave larger homes and move into smaller multifamily buildings, they have less space to store their stuff. They turn to self-storage.

On the retail side, fitness centers are thriving today. As Paine says, when you move from a home to an apartment, you might not have space for a massive treadmill. So instead of exercising at home, you join a gym. That’s part of the reason why so many empty big-box spaces in Indianapolis, and across the Midwest, are being filled by fitness centers.

On the office side? Indianapolis, like many Midwest markets, is seeing increased demand for flexible, co-working office spaces. This type of space is stronger than traditional office space today, Paine said.

Paine points to Yaeger Properties, which about two-and-a-half years ago built its own shared office suites in the Fort Benjamin Harrison market in Lawrence, Indiana, just outside Indianapolis. Those office suites are consistently full, Paine said. In fact, Yaeger Properties is looking for more space to build additional co-working spaces.

Again, though, when you think of the strongest markets in the Indianapolis area, it always comes back to industrial. Indianapolis is currently the second-largest FedEx hub in the world. It is projected to soon overcome Memphis to become the largest. At the same time, Amazon maintains a huge presence in the area.

The last-mile trend has certainly provided yet another boost to this sector. Companies need to open warehouses and distribution centers close to their customers so that they can ship products to them quickly. Indianapolis is situated perfectly for this trend. As Paine says, you can reach 65 percent of the U.S. population within a day’s drive from the city.

The fourth quarter Indianapolis industrial MarketView released by CBRE shows just how strong this sector has been.

CBRE reported that Indianapolis saw 2.1 million square feet of positive net industrial absorption during the fourth quarter. That makes 33 consecutive quarters of positive net absorption in the Indianapolis market.

The area also saw 3.3 million square feet of new industrial space. But even with this increase, the industrial vacancy rate in the Indianapolis market held firm at 4.5 percent, CBRE said.

And leasing activity? It remains strong, too. CBRE reported that the Indianapolis market posted 3.9 million square feet of leasing activity in the fourth quarter, with nearly 3.3 million square feet of new leases.

Paine predicts that 2019 will be another strong year for Indianapolis. This doesn’t mean, though, that the city’s commercial real estate market won’t face challenges.

Construction costs, both in terms of labor and materials, continue to rise, making it more expensive to develop new projects. This doesn’t impact only new construction. Paine says that it makes it more expensive, too, to fund improvements to existing buildings, improvements that owners often need if they want to continue to attract new tenants to their spaces.

Other potential challenges include interest rate hikes, uncertain fiscal policies and possible legislative changes.

“No market likes risk, and that includes commercial real estate,” Paine said. “Some of those unknowns that are out there will affect people’s commercial real estate decisions in 2019.”

But in general? Paine expects more of the same in 2019, meaning a strong commercial real estate market with plenty of sales, leases and new construction.

“Overall, we are in a good economy and people feel optimistic about the future,” Paine said. “I think 2019 will be another good year for us.”