New supply started to rush into the 111,200-unit Indianapolis market-rate investment-grade apartment market in the second quarter of 2012, but demand was equal to the task. The 142-unit The Avenue in central Indianapolis and the 129-unit Residences at Keystone Crossing in the Castleton area both completed during the quarter, but 234 units of net absorption kept the vacancy rate essentially unchanged at 5.7%. That was down 120 basis points from a year earlier. The second quarter Class A rate increased 20 basis points during the period to 5.0%, but the Class B/C rate fell 20 to 6.2%. It was the same story in July, as the 248-unit first phase of East Village at Avondale Meadows added 75 market rate units to the Near Northwest submarket, but net absorption was 77 units.
Another 496 units are expected to complete construction by the end of 2012, when the vacancy rate is forecast at 5.1%, but nearly 2,500 units are under construction for later completion. Even so, strong demand is expected to keep the vacancy rate falling to 4.3% at year-end 2015.
Rent gains are moderate moving to strong. In the second quarter the average asking rent rose 1.1% to $710 per month with the average effective rent up 1.3% to $677 per month, bringing the year-over-year gains to 2.7% and 3.5%, respectively. A gain of 0.2% by both measures followed in July, and Reis predicts large increase of 4.0% asking and 5.2% effective for all of 2012. That would be the largest increase since 1990, when the overall inflation rate was much higher. Subsequent annual effective rent gains are expected to be nearly as large. Second quarter 2012 Class A and B/C asking rents, meanwhile, were $825 and $612 per month, up 1.4% and 0.8% for the period.
“In 2012, vacancy will edge down just 10 basis points to 5.9% as a spike in inventory during the second half of the year increases competition,” Marcus & Millichap predicted in its third quarter report. This source predicts a year-end 2012 average asking rent of $690 per month, up 2.4% for the year.