INDIANAPOLIS—The rise of American manufacturing and the rebound of the housing market, among other factors, have boosted demand for warehouse and distribution space across the US, but few places have benefitted as much as Indianapolis. Its dense transportation arteries and proximity to other major metro areas like Chicago, Detroit, Columbus, Louisville and many others, have attracted developers of modern bulk distribution buildings, medium-sized distribution, manufacturing and other facilities.
According to Cassidy Turley, a commercial real estate services provider, the industrial sector here has already surpassed the five-year annual absorption average of 2.7-million-square-feet. In the third quarter alone, the market saw 1.4-million-square-feet of absorption and net occupancy gains for the year have already hit 2.84-million-square-feet.
“The Indianapolis industrial market is on an absolute tear,” says Jason Tolliver, regional vice president in Cassidy Turley's Indianapolis office. “The traditional drivers of industrial space like housing, manufacturing and warehousing are solid, but the new engine of e-commerce has shifted the market into another gear. As a result, Indianapolis has emerged as one of the strongest markets in the US with some of the largest e-commerce deals completed anywhere in the country.”
Nearly all product types registered positive absorption in the third quarter. “Demand within the modern bulk and medium distribution segments was particularly strong, with occupancy gains for each surpassing the 1-million-square-feet mark through the first three quarters,” the firm found.
As a result, investors have been moving in as well. Chambers Street Properties, a real estate investment trust in Princeton, NJ, for example, earlier this year completed the $30.2 million purchase of 445 Airtech Parkway, a 622,440-square-foot warehouse and distribution property developed by Prologis/Browning Investments in suburban Plainfield's AirTech Business Park. The partners finished it last year, the first speculative industrial development in Indianapolis since 2008, and Hartz Mountain Corp., a pets product supplier, quickly signed a triple net lease for the entire space.
Although leasing velocity was most pronounced in the Southwest and Northwest submarkets, net absorption gains for the year improved fundamentals in virtually all industrial submarkets. Key lease transactions included Dart Care taking 291,977-square-feet at 4430 Sam Jones Expressway in the Southwest submarket and Kenco Logistic Services' leasing of 257,030-square-feet at AllPoints in Whitestown.
Not surprisingly, overall vacancy continues to remain well below the national average. Even with the delivery of several speculative projects the rate is only 5.2%. The vacancy rate for medium distribution was even lower, only 4.2% for the third quarter, followed by a modern bulk rate of 6.4% and traditional bulk rate of 8.1%.
These rates may have reached their lowest ebb. With developers slated to deliver 4.92-million-square-feet of speculative product in 2014, Cassidy Turley forecasts that the vacancy rate will “rebalance closer to its historical average, tracking in the low- to mid-6% range.” Furthermore, the firm expects “average asking rents for all types of industrial product to rise by at least 1.5% over the balance of 2014, with gains eventually reaching 2.4% in 2017.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
