Indianapolis’ industrial market on path for a record year

Andrea Hopper

Andrea Hopper

Guest post by Andrea Hopper
Colliers International

Industrial market strength is not a new phenomenon to Indianapolis. The centrally located logistics and transportation hub has been growing as a focus for users, developers and investors year after year. This year is no exception.

So far this year, the Indianapolis industrial market has achieved historic statistical gains in occupancy, net absorption, leasing activity and new construction momentum. The Indianapolis market reached more than 8.6 MSF of year-to-date (YTD) direct net absorption across all industrial product types.

To further explain the speed of the evolving local landscape, we only need to look 12 months back. The current industrial vacancy rate for the Indianapolis market sits at 4.9% – down from 7.7% at this time last year. The national vacancy rate at the end of the Q3 2016 fell to 5.7%. Both vacancy rates are the lowest on record. According to research performed by Colliers International, Indianapolis was named one of the top five YTD growth markets. The ranking is based on net absorption as a percentage of inventory.  Other growth markets include Charleston, Stockton/San Joaquin County, Savannah and Greenville/Spartanburg.

In Indianapolis, the modern bulk industrial product, categorized as 100,000-sf or larger buildings with 28’ minimum clear height built since 1990, is comprised of 80.2 MSF – one-third of the total market inventory.  Again, when looking at vacancy rates, the bulk product is at 6.5%. At the end of 2015, the product had 12.6% vacancy. All of these key statistics show significant strides in 2016, and we are eager to see how the year-end figures shape up once a few more deals strike and additional tenants take occupancy.

Developers are taking note in the wake of rising occupancy. New construction really is the buzz – both nationally and locally. In the Indianapolis market, more than 5.6 MSF of product is under construction and another 3.6 MSF has already been delivered in 2016. With leasing activity still strong, we do not expect a construction slowdown just yet.  Of the 3.6 MSF delivered this year, more than 50% of that footprint included build-to-suit (BTS) projects. A steady number of users have determined that existing buildings or speculative product will not work for their operation, making BTS construction a preferred choice.

Beyond the current wave of construction, developers are waiting in the wings with land under control and preliminary site plans in tow while others are seeking out coveted land positions.  Whether it be a planned industrial park or a one-off site for BTS opportunities, all local submarkets (with the exception of Northeast) are experiencing growth in the industrial sector. As far as hot submarkets go, the Southwest nearly always dominates primarily due to its proximity to the Indianapolis International Airport and the second largest FedEx package-handling hub in the nation. Eighty percent of the modern bulk buildings under construction are located in the Southwest submarket.  The Northwest submarket follows next in line, but is a distant second both in terms of square footage and number of new projects.

Another trend to watch as of late is rail. Rail-served buildings are a hot commodity that keeps resurfacing in tenant requirements. Intermodals in Chicago and northwest Ohio are within 200 miles of Indianapolis. The Indiana Rail Road Company has been ramping up the downtown Senate Avenue Terminal over the past few years, providing intermodal rail service from the ports of Prince Rupert and Vancouver by way of Canadian National (CN). These Canadian West Coast ports can alleviate the congestion from the Port of Long Beach by providing an alternative option to import and export freight moving to Indiana. There are a growing number of projects that require rail for their operations while available product with this feature is minimal. For developers that have been holding onto rail-served land, now could be the time to capitalize on this growing demand.

E-commerce and the “want it now” mentality is another leading factor in Indianapolis becoming a mega hub for distribution users.  Mainly due to Indiana’s top logistics rankings, favorable business climate and the fact that we have largest concentration of interstates running through the state – thus creates our tag line as the “Crossroads of America.” E-commerce giant Amazon continues to grow its presence in Indianapolis, just one example of an influential tenant understanding the appeal of the Indianapolis market.

I point out all of these additional features of the greater Indianapolis area because they influence decision factors for companies that want to locate here or choose to continue to expand their operations in this market.  It’s not just about the real estate as companies decide to open a facility in a certain area. We know there are other cost variables including labor and transportation that can outweigh the real estate costs. All of these factors contribute to our growth of the booming Indianapolis Industrial market.

Emerging Trends in Real Estate, an annual publication released by PwC and the Urban Land Institute, ranked Indianapolis as 26th in the “U.S. Markets to Watch” for investment and development of real estate (across all product types including office, industrial, multi-family and hotels). The ranking places Indianapolis 2nd out of all Midwest markets (while Chicago is 1st). The recognition is another acknowledgement that Indianapolis is more than just another capital city in a so-called flyover state.

Andrea Hopper is vice president of industrial with the Indianapolis office of Colliers International.

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