[UPDATED] Real Estate Report Shows Strong Industrial Market

The report predicts that western counties will be hot spots for expansion and development, offering interstate access, available land, and proximity to the Indianapolis International Airport. Inside Indiana Business' Gerry Dick will serve as master of ceremonies at today's event.

Press Release
January 8, 2009

INDIANAPOLIS – While the U.S. economy faced major challenges in 2008, the Indianapolis real estate market maintained a strong position in the Midwest, resulting from the area’s population growth and relatively high employment levels.

Presenters at today’s annual The State of Real Estate® event will provide a detailed report that includes this information and the highlights below. The event is hosted by Colliers Turley Martin Tucker, the largest local commercial real estate brokerage firm, will take place at 4 p.m. at The Murat, 502 North New Jersey Street. CTMT’s in-depth market study of office, industrial, retail, land, and investment specialty areas will be distributed at the event and will also be available on the firm’s web site: www.ctmt.com.

Highlights from the 2009 Market Report include:

Industrial Market

The Indianapolis industrial market had one of its strongest years to date. The market continued to grow in 2008 with 4.3 million square feet of positive net absorption and increased in absorption by two MSF since 2007, a signal that leasing activity is strong.

Modern Bulk has consistently led all other product types in terms of positive net absorption. While 4.2 MSF of space was absorbed throughout the year, most activity occurred in the Southwest submarket, followed by the Northwest.

Construction continued in the MSA with 1.9 MSF of added space to inventory. The submarkets that experienced the most added inventory were the East (490,000 SF), South (415,000 SF), Southwest (398,000 SF) and Northwest (189,000 SF). Most new construction has taken place outside of the I-465 loop, a trend the market has seen for several years.

A reduction of construction in 2008 had a positive affect on the vacancy rate, as the vacancy rate decreased from 8.5% in 2007 to 7.4% in 2008. Construction figures returned to a level of normalcy in 2008, seeing as 2007 had a spike of 8.8 MSF of added inventory. A considerable amount of future construction is expected to be build-to-suit. Therefore, overall occupancy levels in 2009 are expected to be positive.

Office Market

The Indianapolis office market grew to 31.4 million square feet of rentable space. The majority of growth occurred in Class A space in suburban submarkets. Thirteen office buildings totaling 924,000 square feet were added to inventory in 2008, most of which were in the North/Carmel and Northwest submarkets. Currently, there are 25 buildings proposed for construction in the MSA, and one was in the construction phase at year-end.

Overall office vacancy in Indianapolis slightly increased from 16.9% at the end of 2007 to 18.2% at the end of 2008. The Central Business District (CBD), which includes Downtown and Midtown, had a vacancy rate of 14.9%, while the suburban submarket had a net vacancy rate of 20.2%. Midtown experienced the largest decrease in vacancy rate since 2007 of 6.9 percent.

Net absorption for the Indianapolis office market was positive 341,000 square feet in 2008. Eight submarkets experienced positive occupancy growth throughout 2008, led by North/Carmel with 117,000 square feet of net absorption.

Leasing velocity is expected to increase in 2009 as the economy improves, but absorption will likely be flat and sublease opportunities will increase. Landlords will scrutinize tenant credit before granting concessions, like abated rent and above standard tenant improvements. Net rents will slightly decrease due to increased expenses and real estate taxes.

Retail Market

The Indianapolis retail market welcomed new retailers to the market, newly constructed strip centers and shopping centers and a variety of specialty restaurants. Several retailers entered the new midfield terminal at the Indianapolis International Airport in the fourth quarter. Simon Property Group developed Hamilton Town Center, an open-air mall in Noblesville, which opened in early 2008.

The retail market also experienced an increase in activity by discount retailers. The heightened demand for discount retailers is a direct result of consumers searching for value and spending money on essentials. Likewise, many fast food restaurants have seen moderate increases in sales and profits, thus they are actively pursuing sites for expansion into 2009.

Construction continues in the Indianapolis retail market. Pharmacies and fitness centers are in construction and planning stages. New shopping centers, retailers, and restaurants opened all around the city, as well as Downtown.

A better vision of the retail market nationally and locally will be more evident in early 2009 once end-of-year holiday sales have been recorded. Prime locations are of great interest and will continue to hold value much better than secondary locations, and rent reductions and declining rent values will continue to take place in 2009.

Investment Market

The Indianapolis investment market began to feel the effects of the credit crunch in 2008. Capitalization rates increased in 2008 by 100 to 200 basis points with activity during the first half of the year more successful than in the second half. Multi-family investment sales were up from 2007, as 20 deals transacted. Industrial, retail and office investment sales continued, but at a slower rate compared to previous years.

The devaluation of the residential market affected the valuation of commercial real estate, resulting in less buyers coming to market at today’s pricing levels. In addition to a decrease in the quantity and size of investment transactions starting in mid-2008, fewer institutional investors sought deals in the market than in the past.

Market liquidity must be in-place for industrial investment activity to occur in 2009. Given the projected easing of lending practices, it is anticipated that buyers will re-enter the market during the first quarter of 2009.

Land Market

Land and home sale prices in the Indianapolis metro area were at their lowest in 2008. A decrease in the number of homes sold and a substantial inventory of available lots resulted in very little demand for land for home construction.

Commercial land developments in the Indianapolis metro area continued but at a slower pace as developers were cautious. Retail, industrial and office developments are underway and several more planned for 2009. Submarkets in the metro area that experienced the most growth in 2008 were North/Carmel, Southwest, and Northwest. At the end of the year, several land development projects were put on hold, with the exception of build-to-suit projects, because of the change in cost and availability of debt financing.

While reduced land activity is expected to continue into 2009, there are several expected growth areas. Development of Downtown Indianapolis rental housing will increase as vacancies remain low and demand from IUPUI increases. Growth will continue in the life sciences sector, thanks to the efforts of BioCrossroads and new developments such as Purdue Research Park at AmeriPlex-Indianapolis. Industrial companies will look to western counties for expansion and development with great interstate access, available land, and proximity to the Indianapolis International Airport.

Residential Market

Like the rest of the country, the Indianapolis-area residential market faced challenges resulting from the mortgage crisis, but Indianapolis fared much better than other cities that have seen much more drastic changes. The number of closed transactions in the nine-county area decreased to 25,000 in 2008 compared to 28,000 in 2007 and the average home price fell five percent. Building permits are also down for the third straight year, which has forced many buyers into existing structures, thus reducing the overall inventory, which continues to decrease in the area. While all of the decreases may seem to be bad news, local realtors see signs that the market is on its way to correcting itself by projecting that existing homes will reach an ideal six-month supply in late 2009. This is expected to lead to more balanced supply and demand and result in stabilization in home prices.

Other projections for 2009 include:

• A return to sales levels seen before the 2005/2006 residential sales spike: selling 28,000 homes in Central Indiana.

• The region will remain on the list of most affordable areas for the foreseeable future.

Today’s Speakers

For today’s The State of Real Estate® program, CTMT specialists in office, industrial, investment, retail and location analysis and incentive procurement plus a residential broker from F.C. Tucker Company will recap 2008 and present projections for the future of Central Indiana real estate.

Participants in this year’s The State of Real Estate® include:

• Host: Jeffrey Henry, SIOR, managing principal of CTMT/Indianapolis

• Master of ceremonies: Gerry Dick, president, Grow Indiana Media Ventures, LLC, creator and host of Inside INdiana Business with Gerry Dicksm

• Speaker on the industrial market: Luke Wessel, SIOR, principal/senior vice president, industrial sales and leasing division of CTMT

• Speaker on the office market: John Crisp, SIOR, principal/vice president, office sales and leasing division of CTMT

• Speakers on the investment market: Rebecca Wells, CCIM, vice president, investment services group of CTMT

• Speakers on location advisory and incentive procurement: Katie Culp, senior vice president, and Tim Monger, senior vice president, location advisory and incentives practice division of CTMT

• Speaker on the residential market: Robert Cowan, GRI, vice president at the F.C. Tucker Carmel office

• Speaker on the retail market: William French, principal/senior vice president, retail sales and leasing division of CTMT

About Colliers Turley Martin Tucker
Colliers Turley Martin Tucker recently completed the consolidation of its ownership structure with Cassidy & Pinkard Colliers, Colliers Pinkard, and Colliers ABR, forming a holding company that is one of the nation’s largest commercial real estate service firms. The consolidated entity operates in all 50 states, completes more than $13 billion in worldwide transactions annually, and manages more than $30 billion in real estate. The holding company’s portfolio totals 300 million square feet under property management, 210 million square feet of space for lease, and $5 billion in capital markets transactions annually. The Corporate Solutions division sustains more than 20,000 locations for Fortune 1,000 companies and delivers a new location “Every 80 Minutes.” Colliers is the top-ranked real estate firm on the Global Outsourcing 100 companies list, IAOP Top 100. For more information about Colliers International, a worldwide affiliation of independently owned and operated companies, visit www.colliers.com.

Source: Colliers Turley Martin Tucker