The big story in the Indianapolis office market is not the latest change in the occupancy rate or rents, but rather the desire by landlords and tenants to create a sense of place. Connectivity and collaboration, amenities and perks, as well as talent recruitment and retention have taken on a heightened importance. Interestingly, these buzzwords are used just as frequently when assessing corporate real estate as they are in the human resources department. Employees today look for their work experience to offer something more than a desktop. They look for connectivity to diverse and conveniently located amenities within walking distance. They want easy access to biking and walking trails and fitness facilities. They seek open collaborative workstations, game rooms, huddle rooms, bike storage, as well as showers and lockers. Their desires are influencing real estate development and the locations employers ultimately select. There is ample evidence of these trends in Indianapolis. Thanks to the wisdom of the city’s early founders and more recently key city officials, Indianapolis enjoys a condensed city core. Its downtown already has the framework to offer up an easy-to-connect experience, recently enhanced with a world-class urban bike and pedestrian path connecting neighborhoods, cultural districts and other …
Midwest Market Reports
A relatively strong 2012 Columbus office market left us with a few questions that will be answered as we move through 2013 and into 2014. Will rental rates continue to increase incrementally while vacancy and tenant improvement allowances continue to fall? Will we see speculative office development for the first time in five years? There are other compelling questions, which should keep things interesting for the next 12 to 18 months. Will the handful of prospects for large blocks of office space opt for longer lease terms versus recent trends favoring short-term deals? Will Canadian investors continue to perceive Central Ohio as a great place to shop for bargains as the Canadian dollar maintains its strength against the U.S. dollar? Development Picks Up Of course, new construction is currently the big story. Last year, the development community broke ground on more than 1 million square feet of new office space, including two downtown projects near Nationwide Arena. The projects include a 286,000-square-foot building, of which Columbia Gas has pre-leased 208,000 square feet, and a 214,000-square-foot Nationwide Insurance build-to-suit. In the Northeast office submarket, nearly 200,000 square feet of new development is under construction, including a headquarters facility for Bob Evans …
The Indianapolis industrial market has experienced a significant amount of absorption during the past several quarters, driving down the multi-tenant vacancy rate to 3.3 percent and leading to a new round of speculative development, according to brokerage firm Cassidy Turley. The key engines driving growth are technology, housing, auto suppliers, and distribution centers related to Internet sales. Some 3.2 million square feet of speculative industrial space is under construction in the Indianapolis area. The city currently has 240.5 million square feet of inventory. When completed, the speculative product in the development pipeline is expected to result in the multi-tenant vacancy rate rising closer to the historical norm of approximately 4 percent. Michael Weishaar, senior vice president and principal at Cassidy Turley’s Indianapolis office, says the low industrial vacancy rate is partly the result of proper planning. “Our developers are intelligent about oversupply,” says Weishaar. “They saw a rough economy and thought we needed to re-look at our supply chain.” With so much speculative development under way, is there enough demand to absorb it all? Although vacancy rates will rise closer to their historical average in the short term when space comes available, in the long run this amount of space …
In the Detroit area and across Southeast Michigan, medical office continues to be a strong performer. With healthcare being one of the state’s largest and fastest-growing economic drivers, an aging population and a robust system of public, private and university hospitals across the region, a generally positive growth trend seems unlikely to change anytime soon. Farbman Group’s own portfolio of 4 million square feet is currently more than 95 percent occupied, and quality medical office space remains in high demand. There are, however, some noteworthy developments taking place both inside and outside the healthcare industry that are shaping its future. Medical office real estate trends locally and regionally are beginning to reflect those changes. Consolidation Wave Perhaps the healthcare trend with the most significant potential to alter the medical office and medical real estate marketplace in Southeast Michigan is that of consolidation — healthcare systems coming together via mergers, acquisitions and strategic partnerships. This trend is, in some respects, similar to what has occurred in the banking industry during the last decade. We are likely to see the same kind of phenomenon continue to pick up momentum in healthcare during the next five years or so. There are three primary …
Building on the trends that began to emerge in the second half of 2010, the Toledo region’s industrial real estate market continues to improve. Demand for space in northwest Ohio and southeast Michigan is occurring at its typical slow, steady pace. The result has been positive net absorption of more than 400,000 square feet during the past year. The vacancy rate fell from 8.65 percent at the end of 2011 to 8.52 percent at the close of 2012. If the improvement in the vacancy rate slows during the next 12 months, it will more likely be due to the poorer quality and functionality of much of the residual stock of empty buildings than weakening demand. One can see this evidence with the spike in new construction driven by build-to-suit projects for several noteworthy users who could not find suitable space within the existing supply. Auto sector is big driver It would come as no surprise to anyone remotely familiar with Toledo’s history and economy that a considerable portion of the user activity has come from the automotive sector. Suppliers to primarily Chrysler Group and General Motors (GM) have been quite active and have accounted for several of the larger lease …
After a seemingly relentless economic recession, the retail atmosphere is changing in southeastern Michigan as more local and national tenants look to grow here. The positive momentum that began in 2011 in the retail industry has continued. Retail sales rose modestly in 2012, and retailers expect sales to continue to rise in 2013. The source of the optimism stems from the resurgent auto industry, which drives metro Detroit’s economy. Job growth is accelerating, leading to a drop in the unemployment rate. Absorption is positive in the Class A industrial and office markets. All of these factors are having a positive effect on Detroit’s retail market. Retailers eye downtown Downtown Detroit is bursting with an energy not seen since the 1950s. Dan Gilbert, owner of Quicken Loans, is responsible for much of the change. His recent real estate acquisitions, 15 buildings to be exact, and relocation of 7,000 employees to the central business district, have created a buzz that retailers are noticing. Olga’s, Bagger Dave’s, Buffalo Wild Wings and Moosejaw have all planted roots downtown. Whole Foods Market is scheduled to open this year in midtown near the Detroit Medical Center and Wayne State University. National retailers are lining up to …
Downtown Cleveland is in the midst of a redevelopment boom. During the last 12 months, the city has seen a new $350 million casino and a new $33 million aquarium open. And over the next 24 months, it will see a new $465 million convention center complex, a new $275 million multi-tenant office building and hotel and a $180 million redevelopment that will include a new 220,000-square-foot office tower as a part of consolidation efforts for the Cuyahoga County government. However, one of the most impactful and long-lasting components is the development of more than 1,100 new residential housing units that have either been announced or are under construction. If all come to fruition, it will increase downtown’s residential inventory by over 20 percent. Market Drivers Although there are numerous factors contributing to this residential building boom, the following stand out as key components. • Build it and they will come? They are already here. As of January 2012, the downtown area had just under 4,200 residential units. Of this, approximately 25 percent were developed in the past five years. However, this delivery schedule was much lower as compared to the blossoming demand. The source of this demand has come …
Although apartment construction has heated up in Minneapolis, renter demand remains healthy as many renters are wary of homeownership. As a result, vacancy is still below market equilibrium. Many renters in the market are young professionals who, before the housing market collapse, would have been looking to purchase a condominium. To appeal to renters, new apartment developments are adding higher-end finishes and features such as a concierge service, pub or cafe, outdoor gathering space, rooftop decks, dog runs and pet-care areas. In the process, builders have established a new rent ceiling and redefined the Class A segment. Supply-Demand Balance As a wave of new high-end projects are injected into the market, owners with existing top-tier properties could be at a disadvantage and will need to increase concessions to maintain occupancy levels. Approximately 131 apartment units came on line in the second quarter, for a total of 405 units finalized in the first half of 2012, expanding overall inventory by 0.3 percent. In the first six months of last year, 175 units were added. Development activity is expected to continue at a heightened pace. Some 2,450 units are under construction with completions scheduled through 2013. Also, there are more than 9,300 …
Has the pendulum swung to favor property owners in the Twin Cities industrial market? Not quite, but strong net absorption for bulk buildings and a recovering economy are creating positive momentum, bringing the market closer to equilibrium. Challenges remain for manufacturing and low-clear-height properties, but we expect that area of the Twin Cities industrial market to strengthen, too, as overall conditions continue to improve. In the third quarter, industrial net absorption totaled 669,179 square feet, driving down the vacancy rate to 11.2 percent compared with 11.8 percent in the previous quarter for the 113 million-square-foot market. The Northwest and Southwest submarkets led the way, with 329,774 square feet and 226,230 square feet of net absorption, respectively. While positive net absorption is a great sign for the Twin Cities industrial market, the statistics really get interesting when broken down for big-box bulk properties, especially modern space built since 1995 with at least 28-foot clear-height ceilings. Modern bulk industrial properties account for approximately 25 percent of the overall 25 million-square-foot bulk market, but gained more than half of the subsector’s net absorption with 131,175 square feet. That led to a 2.1 percent drop in third-quarter vacancy from the previous quarter, to 5.7 …
A rise in office-using employment and corporate profits has benefited underutilized Milwaukee space and spurred some companies in the metro area to expand their space needs. Several leases above 30,000 square feet were finalized in the first half of 2012. The accounting firm Baker Tilly Virchow Krause LLP took 68,000 square feet. Healthcare information systems provider Connecture Inc. inked a deal for 32,200 square feet. Marshall & Swift/Boeckh, a provider of building cost data and estimating technology to the property insurance industry, leased 38,200 square feet. Leasing activity helped push absorption into positive territory during the first two quarters, although rent growth remains minimal. It will take a few quarters of strong absorption before any significant upward trend in rents is realized. The limited construction pipeline has helped stabilize vacancy. The few competitive projects to break ground must have major leases in place before building activity gets under way. A rise in owner-occupied and government construction, however, could affect short-term vacancy in targeted areas, if leased space is vacated. About 30,000 square feet of office space came on line in the second quarter upon the completion of the refurbished Clock Shadow Building on Bruce Street in Milwaukee. The mixed-use building …