By Chris Bruzas, Berkadia
After a particularly challenging and unpredictable 2024, marked by continued interest rate volatility and a persistent bid-ask spread differential that contributed to low transaction volume, the Indianapolis apartment market is showing promising signs of stabilization as we move into 2025.
Yardi Matrix data highlights Indianapolis’ resilience, posting 2.7 percent year-over-year rent growth in November. This performance is especially noteworthy as it surpasses several popular Sun Belt markets, which have experienced declines, dipping into negative territory.
The outlook for 2025 appears more balanced, with new supply moderating to approximately 3,500 units from 2024’s record-breaking 6,500+ deliveries. This timing aligns well with the market’s strong population growth, as Indianapolis expects to welcome 22,200 new residents in 2025, significantly exceeding the historical average of 12,800 annual net movers.
Key factors of the population’s growth are due to the presence of reputable universities and colleges, such as Indiana University-Purdue University Indianapolis (IUPUI). Compared with other major metropolitan areas, Indianapolis offers a relatively low cost of living, making it an attractive destination for those looking to maximize their quality of life without the high expenses associated with larger cities.
The region’s economic fundamentals remain strong, anchored by transformative projects including Eli Lilly’s $4.5 billion LEAP Innovation District, the $2.3 billion Indiana University Health campus development and the continuing evolution of the $300 million Bottleworks District. With these initiatives, employment growth is expected to increase 0.8 percent in 2025.
While the investment market continues to face headwinds from overpriced listings, seller expectations are gradually realigning. The rapid increase in property values over recent years, driven by strong demand and limited supply, has led sellers to set high expectations. Additionally, the influx of new developments and the anticipation of continued economic growth have contributed to inflated pricing.
However, as the market stabilizes and new supply moderates, sellers are beginning to adjust their expectations. The alignment of seller expectations is partly due to increased competition from new developments, which offer buyers more options and leverage in negotiations. Furthermore, the recent peak in cap rates and the stabilization of multifamily valuations have prompted sellers to reassess their pricing strategies to remain competitive and attract potential buyers. This realignment is expected to facilitate more transactions and create opportunities for investors seeking long-term value in the Indianapolis market.
A key opportunity is emerging in the widening spread between 1960s/70s vintage properties and early 2000s assets. Despite pressure on rents and operating expenses, the market is not expecting significant distress or widespread foreclosure activity.
The Carmel/Hamilton County submarket stands out as a prime example of the Class A space, maintaining rents 17 percent higher than the metro average and benefiting from a robust median household income of $143,700 — significantly surpassing the metro average of $82,300.
While uncertainty around interest rates may create some turbulence, Indianapolis’ strong demographic trends and diverse economy position the market for steady growth, with rents projected to increase by 3.1 percent by the end of 2025.
On a macro level, the largest wave of new supply in 50 years has been absorbed at a healthy pace, with rents holding steady. The growth in operating expenses is moderating, which is easing pressure on net operating income margins. Cap rates have peaked, and multifamily valuations increased in 2024. With an improving outlook, current valuations present a compelling long-term investment opportunity, driving increased multifamily transaction activity in 2025. We expect fundamentals to remain soft through 2025, as new supply continues to come online.
Ultimately, the long-term drivers of rental housing remain robust, positioning multifamily investments in Indianapolis for strong performance in the years ahead.
Chris Bruzas is a managing director with Berkadia Indianapolis. This article originally appeared in the February 2025 issue of Heartland Real Estate Business magazine.