by Dan Rafter
Indianapolis’ office market continues to hit new heights, with JLL reporting that rents for the office buildings that make up the city’s skyline are now averaging about $20 a square foot. That’s the first time these skyline office properties have hit that figure in at least a decade, according to JLL’s 2016 Skyline report.
Even more impressive are the rents for trophy properties, the ultra-premium office towers within the skyline. JLL says that trophy office rents in 2016 have soared to an average of $21.50 a square foot.
The reason behind this increase in office rents? As usual, it comes down to demand.
“Absorption in Indianapolis has been strong for the past two years, which is pushing lease rates up,” said Mike Cagna, senior research analyst in the Indianapolis office of JLL in a written statement. “Investors havce responded to the market’s leasing activity with the first sales of Indianapolis skyline buildings since 2014.”
Indianapolis’ skyline office market is a bit of an anomaly. JLL reported that only 9.5 percent of the skyline buildings across North America traded in 2015, down from 10.7 percent in 2014. The drop was even greater when looking at the first quarter of this year. The number of skyline buildings that traded in the first quarter of 2016 was down more than 72 percent in primary markets and nearly 47 percent in secondary ones.
That’s not the case in Indianapolis. Three of the market’s 12 skyline buildings have traded this year, according to JLL, including the 440,000-square-foot BMO Plaza building at 135 N. Pennyslvania St. The Heam Company bought this 28-story building from True North Management Group earlier this year.
The other skyline sales were Market Square Center and Two Market Square, both of which Mission Peak Capital acquired earlier this year. The hope, of course, is that the new owners of these properties will invest more dollars into them to make them even more attractive to possible tenants.
“A growing number of tenants are no longer willing to focus only on traditional office space in well-located trophy assetes. They want their space and their building to reflect the image of their company,” said Josh Wrobel, managing director with JLL’s Agency Leasing in Los Angeles, in a statement. “Rooftop decks, plenty of open space and wellness are huge factors that will increase an asset’s value. Owners need to be willing to make this investment in these common areas.”
One of the key leasing deals in Indianapolis’ skyline market this year is the Salesforce deal at Chase Tower, the largest office tower in Indiana. The San Francisco-based cloud-computing company is leasing 227,781 square feet at the tower. Industry experts say that the deal might encourage more tech firms to look at Indianapolis’ skyline buildings. Chase Tower will is being renamed Salesforce Tower in honor of the big deal.