INDIANAPOLIS—The increased interest in traditional office properties here has brought in national investors, who are expected to pour capital into their latest acquisitions.
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Brian J. Rogal |
brianjrogal |
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Updated on June 27, 2016
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Chase Tower in Indianapolis, which will be renamed Salesforce Tower under a deal which will see the tech giant occupy more than 200K of space. INDIANAPOLIS—The office market in this metro area had been for years heavily weighted toward the suburbs, but recently its downtown began seeing a flood of new tenants and investors. That change has continued into 2016, according to JLL’s new Skyline report, its study of the top downtown properties across the US. Rents for Indianapolis’ top office buildings jumped into record territory in 2016, averaging about $20 per square foot for the first time in at least a decade, more than 5% higher than the first quarter of 2015. And rents for trophies, the ultra-premium office towers within the city’s 12 Skyline buildings, just hit $21.50 per square foot, JLL found. The most significant recent change may be theSalesforcedeal at Chase Tower, which will be renamed the Salesforce Tower. The San Francisco-based cloud computing giant anchors an eight-floor, historic building at 36 S. Pennsylvania St., but recently decided to take 227,781 square feet in Chase, a more traditional, modern office building, the type of space tech companies usually avoid.“This deal smashed that perception,”Mike Cagna, senior research analyst in the Indianapolis office of JLL, tells GlobeSt.com. Downtown has become the place to be for tech firms, primarily because the neighborhoods around the CBD have seen a massive influx of residents, especially young residents that the companies want to hire.“Salesforce knows that there are now places for their employees to live near the office,” Cagna adds. In 2009, about 3,600 units total existed near downtown, but in the past few years developers have created another 3,400 units, frequently by rehabbing older structures. And with little historic space left for use as office space, companies like Salesforce are even more likely to opt for traditional office towers.The revival of the downtown has also meant that its capital markets activity has conflicted with the national trend, which has seen overall investment volumes into Skyline buildings fall. Earlier in the economic cycle, many Skyline buildings traded hands, leading to fewer investment opportunities in the past year. Only 9.5% of Skyline buildings across North America traded in 2015, down from 10.7% in 2014. However, in Indianapolis it’s been a different story. Three of the market’s 12 Skyline buildings have traded hands this year, including the 440,000 square foot BMO Plaza building at 135 North Pennsylvania St. TheHearn Co.purchased the 28-story building fromTrue North Management Groupearlier this year.Market Square Center, which is 65% occupied, and Two Market Square at 251 E. Ohio, which is 57% occupied, were recently acquired byMission Peak Capital. Most observers believe the new owners will make significant investments into the properties before embarking on repositioning and re-leasing efforts.“Absorption in Indianapolis has been strong for the past two years, which is pushing lease rates up,” Cagna adds. “Tightening conditions mean that tenants won’t see a reprieve for a few more quarters, but we do anticipate rents in the Skyline will begin to moderate. We expect annualized Skyline rent growth this year to rise by just half the rate of 2015 nationwide.”
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