JLL: Indianapolis office market hits lowest vacancy rate since 2008

Matt Waggoner

Matt Waggoner

by Dan Rafter

The Indianapolis-area office market thrived during the first quarter of 2016, notching five leases of more than 40,000 square feet. At the same time, the market saw seven capital markets transactions during the quarter, five of which were investments in office buildings in Indianapolis’ Central Business District.

This is the good news reported by JLL in its most recent Indianapolis-area office survey.

According to JLL’s numbers, the office vacancy rate for the Indianapolis market fell to 15.6 percent at the end of the first quarter, its lowest mark since JLL began tracking the market after opening its first Indianapolis office in 2008.

This has led to a boost in asking rents, too, pushing the average cost for Class-A product in both city and suburban markets to about $20.80 a square foot.

Matt Waggoner, senior vice president of tenant representation with the Indianapolis office of JLL, credited several factors for the strong performance of the Indianapolis office market.

“We have a lot of good organic growth in the Indianapolis economy right now,” Waggoner said. “Economically, companies are doing better. They are more confident and are read to invest.”

Waggoner said that four of the five biggest office deals of the first quarter in Indianapolis were closed by existing companies that are increasing their existing footprints.

At the same time, tech companies and start-ups are attracted to the Indianapolis area, Waggoner said. These tech companies are looking for new office space and moving their headquarters to Indianapolis. Waggoner said that downtown Indianapolis, especially, has become a top destination of tech players.

Then there is the increased interest of outside investment groups in the Indianapolis market. Waggoner said that investors not from Indianapolis understand that the city offers a great opportunity for them.

“A lot of groups outside of Indianapolis are seeing the city as a desirable place to invest,” Waggoner said. “This is really for the same reason that people like to live here: It is affordable here. You get more for your dollar here, but you still get all the big-city amenities that you want.”

Looking for the right amenities

What are companies looking for when they invest in Indianapolis office space? Waggoner said that companies today appreciate the low commute times even for office space in downtown Indianapolis.

The commute to and from downtown Indianapolis is rarely ever more than 25 to 30 minutes, he said. This makes opening an office location in downtown Indianapolis more feasible to companies that want to provide their employees with a better quality of life.

Employees, once they get to their downtown offices, can then take advantage of the restaurants, entertainment, shops and green space in and around the downtown core.

“A lot of companies that are looking to recruit employees in software development or who want to recruit Millennials are focused on the downtown areas,” Waggoner said. “They want to be able to offer that all-inclusive environment. Our downtown is very safe. There is a nice, walkable environment downtown.”

More Indianapolis residents are choosing to live downtown today, which is boosting both the office market and the retail market in the center of the city. Waggoner said that so far, most of the new residents downtown are either Millennials or empty nesters. Families are still living mostly in the suburbs or surrounding neighborhoods, he said.

The best part of this focus on downtown? Waggoner said that most new office tenants downtown have plans to pour money into the spaces they are occupying.

“The downtown office market had lagged the suburbs for the last seven years,” Waggoner said. “The big corporate users and law firms were reducing their footprints. Now that is starting to change. The suburbs still have a lower office vacancy rate, but the downtown is seeing much more activity.”

The future looks bright for the entire Indianapolis office market, according to JLL’s research. The company reported that several office projects are now under development, with more scheduled to soon break ground. Three office projects scheduled for delivery this year are expected to add another 140,000 square feet of Class-A office space to the market, according to JLL.

Developers here are following the national trend of converting obsolete office space into residential, hospitality or other uses. For instance, two of the capital markets transactions that closed in the first quarter were for Class-B office buildings that will be turned into hotels. Another office asset, the vacant Brougher Building, will be converted to multi-family.

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