By Scott Gray and Larry Davis, CBRE
Indianapolis retail is bracing for multiple mid-box and big-box closures that will bring large blocks of retail space back on the market, all within a short amount of time.
Changing tides of consumer behaviors, competition and e-commerce created troubles for some national retailers, leading to liquidations and bankruptcies. Some are scaling back the number of stores and implementing new strategies, while some are being forced to close their doors for good. The holes created by this activity and how these vacancies will be filled are on the minds of every retail broker and landlord in the region.
Spaces being vacated include electronics retailers,
sporting goods retailers, supermarkets, department stores and fashion retailers. These players occupied spaces ranging from 15,000 to more than 100,000 square feet. In all, an estimated 1.5 million to 2 million square feet of space could be vacated during the next two to three years in the Indianapolis metro area.
While it can seem like the potential for high vacancy rates is a problem, it would also create a unique opportunity for national retailers to make an entry into the Indianapolis market. With a large amount of product on the market, retailers would have plenty of choices for locations, and rental rates could foreseeably soften. With these barriers to entry removed, we could see expansions from players not previously in the market.
The closure of big-box space shouldn’t be a red flag to new entrants, as Indianapolis is a stable market with good fundamentals, attracting investment from across the country. Population and job growth have been stable, and an emerging tech sector is poised to spark more high-wage jobs coming into Indianapolis.
The city ranks high nationally for having a positive business climate, ranking in at 21st on Forbes list of Best Places for Business and Careers and eighth in Area Development’s Top Places for Doing Business in 2016. Industrial growth from logistics and e-commerce users is having a positive trickle-out effect on the health of the region that should catch the attention of national retailers.
We could see players in grocery, discount general merchandise, entertainment, home furnishings, apparel and other categories that are not currently in the market take a good long look at what Indianapolis has to offer. Also, we believe that the demand for non-retail uses will continue to thrive with some of this well-positioned real estate.
Uses such as health care, self-storage, and other non-traditional tenants will continue to emerge as quality users competing for many of these properties. In the short-term, vacancy rates will tick up as big block stores close, but don’t expect it to stay that way for long. Opportunity will abound with a variety of sizes and locations to usher in the next wave of retail to Indianapolis.
Scott Gray and Larry Davis are first vice presidents with the Indianapolis office of CBRE.