Q2 2012 Indianapolis, Indiana Office Market Trends

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Q2 2012 Indianapolis, Indiana Office Market Trends

The 32.6-million-square-foot Indianapolis general purpose, multi-tenant office space market hasn’t done much in the first half of 2012, but the deterioration that continued through 2011 may have ended. The second quarter 2012 vacancy rate was 20.5% according to Reis, unchanged from the start of the year but down 60 basis points from a year earlier. The rate edged down 10 basis points in July with net absorption for that month at 28,000 square feet. The second quarter Class A vacancy rate was 18.8%, down 100 basis points from a year earlier, while the Class B/C rate was 22.4%, down just 10 year-over-year and up 30 during the quarter.

After three years of negative net absorption, Reis predicts a 2012 total of plus 108,000 and a year-end vacancy rate of 20.2%. Despite high vacancy, an 80,700-square-foot building broke ground in June in northeast Indianapolis, and Reis predicts new supply will resume in 2013. This will slow the decline in vacancy as demand improves; keep the rate above 17.0% through 2016.

Office rents have been edging up almost imperceptively. In the second quarter the average asking rent rose 0.2% to $17.73 psf and the average effective rent rose 0.1% to $14.08 psf. The year-over-year gain was 0.7% by both measures, but the effective average slipped a penny in July. Reis predicts gains of around 1.0% for 2012, followed by greater increases eventually reaching 4.0% for the effective average in the years to follow. The second quarter asking average, meanwhile, was $20.12 psf for Class A space and $15.12 psf for Class B/C.

“Overall vacancy for the Indianapolis Market stands at 21.1% in the second quarter of 2012, down from 22.3% a year ago,” according to Cushman & Wakefield. The overall rental rate is given at $17.12 psf.