Indiana’s industrial market stays busy but still faces challenges

The industrial sector in Indiana is thriving today.

by Sara Freund, Staff Writer

Indiana is a state with a historically active industrial market, and the tidal wave of e-commerce companies has done nothing but push development in this sector to unparalleled levels.

A little less than half the market is fueled by e-commerce companies, Brian Seitz, the managing director of JLL’s Indianapolis office told Midwest Real Estate News. The overall industrial activity in the market is also the highest he’s ever seen, he said.

Indianapolis is the largest market for industrial in the state, largely due to its location and infrastructure. The city received 1.3 million square feet of speculative construction at the beginning of the year, and JLL expects that at least 4 million square feet will be delivered by the end of 2017.

Even with nearly 70 percent of construction being spec, there’s no concern about overbuilding because tenant demand remains strong, with more than 13.5 million square feet of active requests, JLL reported.

New projects coming onto the market tend to range from 350,000 square feet to 900,000 square feet and are aimed at e-commerce tenants, Seitz said. The new product coupled with tenant demand has caused asking rents to rise more than 2.2 percent since last quarter and more than 3 percent since last year, JLL reported.

Properties that are customizable to a specific tenant are important. Many e-commerce companies are looking for space where they have flexibility and room to expand in two or three years, Seitz said.

“We completed a project for Best Choice Products, which is an e-commerce company. They’ve been our client from an early stage and we’ve seen them grow from a 90,000-square-foot space to now filling a 700,000-square-foot lease where they took over the entire building,” Seitz said.

Indiana has a good labor force and a business-friendly government, so it’s not just Indianapolis that’s seen a surge from e-commerce companies, Seitz said.

“Down in southern Indiana, Jeffersonville, they’ve done well. Amazon has a distribution facility down there, RiverRidge Commerce Center is a large active project and several developers have starting building half-million-square-foot facilities,” Seitz said.

The success in Jeffersonville is largely because of the addition of a new bridge over the Ohio River, which opened up the area and allowed easier access to the UPS hub in Louisville across the river, Seitz added.

E-commerce may be causing a boom in the industrial market, but other sectors are not so lucky. The retail sector is under pressure to change the way it traditionally operates. Major retailers, most recently HHGreg in Indiana, are closing hundreds of stores across the country, but are leaving space for more creative and experimental tactics.

A report from CBRE predicts ‘rogue retailing’ such as pop-ups, food trucks and other formats will drive the demand for new retail leases. Landlords prefer long-term tenants but the market is shifting toward a short-term leases with non-national tenants. This flexibility allows online retailers to experiment with brick-and-mortar stores too. Warby Parker, Casper and Amazon are some of the brands that are testing out physical stores.

A challenge for industrial during so much new spec development is supplying a strong workforce. Indiana hasn’t had to worry about that in the past, but now the unemployment rate is decreasing and demand for warehouse labor is increasing, according to a report from JLL. That pushes up the costs of labor. In fact, e-commerce-focused leasing can drive local demand for labor at a rate two to three times that of traditional warehousing operations, JLL reported.

Mark Hosfeld, vice president of leasing and development at Duke Realty, doesn’t view workforce issues as a major concern.

“Labor is a key decision factor for any company located in Indiana, and our state has had a good, steady supply,” Hosfeld said. “As long as companies look closely at how they’re attracting employees and offer flexibility there is no problem.”

What could cause more difficulty is the current political climate, Hosfeld added.

“The uncertainty in politics that we didn’t have six months ago is slowing down the decision-making process by clients who are waiting to see what happens,” he said.

Regardless of what policies are put in place, a way to stay ahead of the curve is to make sure you listen to your clients, Hosfeld said.

“We’ve been in Indiana for more than 40 years, and have continued to find the right product for our customers as they grow. We listen to what they need now, what they need 5 to 10 years from now,” he said.

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