INDIANAPOLIS—This region's office market saw its vacancy rate tick up 0.6% to 16.0% by the end of 2017, according to Colliers International. But that number masks the strengths shown by portions of the market, especially the CBD and the north suburbs. And overall trends denoted steady new leasing and investment sales activity, while asking rents rose 4.4%, the largest annual increase on record.
Much like the metros of Kansas City and St. Louis, Indianapolis' office market has been dominated by the suburbs for a long time. But with so many people now wanting to live and work in downtowns, that has started to change. The Indianapolis CBD, for example, now has a lower vacancy rate than the suburban markets for the first time since 2012, Colliers finds in its fourth quarter report.
Tenants in the downtown's class A product absorbed 265,090 square feet of vacancy in 2017, mostly in the top-tier office towers. “After years of declining occupancy, downtown top-tier office towers shed 2.9% points of vacancy in 2017 and ended the year with a 15.8% vacancy rate,” Colliers says.
The most significant office activity of 2017 were tech giant Salesforce's move into the newly branded Salesforce Tower and InfoSys's absorption of two floors in OneAmerica Tower. Class A asking rental rates, following the decline of downtown vacancy, rose to $23.80 by the fourth quarter, up 5.2% year-over-year.
But certain suburban properties also saw a lot of activity last year. “The lion's share of new suburban leasing activity occurred in class A buildings in the north suburban submarkets, and newly available large blocks of space will create opportunities for tenants looking for quality space in established suburban office settings,” Colliers says. “Despite the increase in suburban vacancy, asking rates are up 5.9% year-over-year as owners continue to invest in their properties and compete for tenants.”
That activity and demand has attracted interest from many investors. Properties totaling 5.4 million square feet traded for more than $600 million, and much of it was in the north suburbs. The year began with Duke Realty selling Hamilton Crossing, and ended with Strategic Capital Group's purchase of Precedent Office Park.
“Moving into 2018, new construction will continue to play a role in the north suburban markets, while new-to-market tech and strong fundamentals will boost CBD occupancy and asking rents,” Colliers says. To the surprise of some, Indianapolis landed on Amazon's top 20 list of metros for its potential new headquarters, but observers here say its just one more indication that their downtown has become a true hub for growing tech companies.
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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.
