Indianapolis
A STRONG LOCAL ECONOMY IS BUOYING
Indianapolis’ commercial real estate
markets. A business-friendly climate is
helping to attract and retain businesses,
which aids in job and population
growth. All of this, says Colliers Turley
Martin Tucker managing principal Jeff
Henry, has kept brokers, developers
and construction crews busy.
Though 27. 4 million sf of space was
added to the market between 2002 and
2007, the local industrial sector remains
healthy, maintains CTMT. The area
continues to be a major regional and
national distribution hub. Last year
alone, 1. 2 million sf was absorbed.
Though the local vacancy rate rose to
8.6% from 6.2% at year-end 2006—
mainly due to five million sf of speculative additions in 2007—it is expected to
stabilize this year. Of the 2. 6 million sf
of new space slated to come on line this
year, only 600,000 sf has not been spoken for.
Indeed, CB Richard Ellis reports that
the local market continues to draw big
names, most recently, Honda, Nestle
and Medco, and notes that the expansions of the new international airport
and FedEx hub are generating additional demand. The firm pegs the year-end industrial vacancy at 6.6% and
average lease rate at $3.87 per sf.
Approximately 1. 8 million sf is slated
for delivery this year, the lowest
amount in several quarters.
The industrial market is so attractive,
says the firm, that investors are clamoring for quality assets. “For the first time
in the Indianapolis area, we’re seeing
developers sell vacant spec buildings,
sometimes even before construction is
completed,” CBRE researchers write.
“This is an easy way for a new investor
to enter a market and an opportunity for
a developer to, at a minimum, break
even on a building it’s been carrying
vacant for several months.” Investors
have also been finding higher yields, the
firm says, in the redevelopment of sec-
ond-generation buildings, mainly former
manufacturing or warehouse facilities.
Redevelopment is also the trend in the
market’s retail sector, which is seeing the
addition of new store space within
mixed-use rehabilitation projects in
lifestyle, town-center and neighborhood
developments. Following a 25% uptick
between 2005 and 2006, retail rents went
up 6.7% over last year to $12.79 per sf.
However, because nearly 1. 2 million sf
of new deliveries brought the year-end
vacancy up to 17.6%, CBRE is reporting
that many developers are curtailing and
tabling new projects.
Vacancy in the office sector also
ticked up, rising 60 basis points over the
year to 16.9%, says CTMT, a small
increase considering 709,000 sf of new
space was delivered. At 371,000 sf,
overall absorption for 2007 was down
25% from the prior year’s total. The
suburbs fared worse than the CBD,
which actually saw its vacancy trend
down to 15%. The addition of new
space was to blame for the poor performance of the suburbs, says Henry, and
the fact that all of the 918,000 sf slated
for delivery this year is in the suburbs
isn’t going to help matters. Expect the
suburban vacancy rate to go up, the
executive says, while the CBD will
improve.
Still, rental rates for class A office
space went up in all of Indianapolis’
submarkets. After declining for the past
few years, CTMT reports that rates for
CBD office space increased six cents to
end the year at $19.47. Suburban rents,
meanwhile, rose from $19.25 per sf to
$19.49.—Sule Aygoren Carranza
Minneapolis/
St. Paul
CONSIDERED ONE OF THE MIDWEST’S
major business hubs, the Twin Cities of
Minneapolis and St. Paul entered 2007
on a positive note. But as the subprime
issues unfolded and the US economy
slowed down, so did the local commercial real estate markets as space users,
faced with uncertainty about the future,
held off on making any major decisions.
In the industrial sector, for instance,
absorption plummeted. United
Properties reports just 50,864 sf of space
taken up at year-end, down from nearly
1. 7 million sf at midyear, bringing
industrial vacancy to 12%. Meanwhile,
some 1. 1 million sf was delivered in
2007 and more than a million sf was
under construction as 2008 began, with
another 918,810 sf in the pipeline.
Colliers Turley Martin Tucker pegs
2007 industrial absorption at a healthier
938,723 sf, but that figure is paltry compared to the 2. 3 million sf absorbed in
2006. The firm’s statistics show vacancy
rose 20 basis points to 10.6%. Despite
the decline in leasing, CTMT managing
principal Jeffrey LaFavre says landlords
have been able to increase rents by
about 5% to 10%, and he expects modest growth in 2008.
“The industrial sector should lead the
charge among real estate assets this
year,” the executive says, adding that
moderating land prices will drive more
speculative development. “Having said
that, activity will remain brisk, but it
will take longer to close deals as firms
look for shorter-term renewals to provide protection as they assess the economy’s direction.”
United Properties agrees with
LaFavre’s assessment. The firm anticipates absorption to bounce back in
2008 to about 1. 4 million sf in the first
half alone, though increased spec developments will likely push vacancy up
temporarily.
Development is also placing pressure
on the office sector, which saw its
vacancy flatline at 15.2% over the year
despite some 602,475 sf of positive
absorption due to about 950,000 sf of
new deliveries, according to United
Properties. Another 1. 8 million sf of
office space is scheduled for completion
this year. The good news is that the firm
sees absorption ending ’08 at 750,000 sf,
though it does warn that if conditions in
the financial industry continue to deteriorate, there could be additional weakness.
The housing market decline, along
with higher gas prices and job cuts, took
its toll on consumers in the Twin Cities.
Though Grubb & Ellis pegs the local
retail vacancy rate at just above 3%, that
