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Downtown Indianapolis Turns a Corner

INDIANAPOLIS—The CBD has struggled since the recession, but both new tenants and investors are taking a second look.

By Brian J. Rogal | brianjrogal | | Updated on February 08, 2016

 

The Indianapolis downtown has seen a surge of interest from coastal investors The Indianapolis downtown has seen a surge of interest from coastal investors
INDIANAPOLIS—The US economy has done fairly well in the past year, but the economy in this Midwest state city has outpaced national job performance, ending the year at 4.2% unemployment and adding nearly 100,000 people to the labor force since January 2013, according to a new report from Colliers International. And that has given a boost to the office market in its largest city. Vacancy fell 150 bps year-over-year, asking rents grew 1.6%, and developers have broken ground on new buildings in the north suburbs and begun renovating others in the CBD, changing the face of the local office landscape. For several years the CBD has lost tenants to the north suburban markets, but the downtown was the standout here in 2015. Direct vacancy fell to 18.3% by the end of 2015 after hovering around 20% for six years. “Absorption more than tripled year-over-year, aided by a healthy mix of activity between all product types,” Colliers says. “Top-tier class A towers drew momentum from new-to-market firms seeking high-profile offices, class B properties drew government and back office tenants, and creative-character buildings’ appeal to tech users kept their occupancy above 90%.” As reported in GlobeSt.com, a host of investors, including many from out-of-town, have continued buying up historic buildings in the CBD and reenergizing these for a variety of users, including some tech firms. Year-end total sales volume was $257 million, down 12.3% from the total reached in the extraordinary year for investment in 2014, but Colliers finds that buyers spent more than $172 million on value-add properties. The new-to-market investors have found that they can achieve returns in Indianapolis impossible in gateway markets. “If the local office leasing market continues to perform well and the capital markets retain their liquidity, a substantial number of stabilized sales will occur in 2016 as investors tighten their return requirements to core-plus levels.”  

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