While national multi-housing trends have begun to show recessionary weakness, Indianapolis area market fundamentals have held up well over the past 12 months. Indianapolis has long been one of the more affordable single-family markets in the country and until recently had been well-supplied with several very efficient large single-family developers. The deterioration of this industry is the single largest factor responsible for the city’s stable and improving multi-housing performance.
The Indianapolis multi-housing market consists of 130,000 units in 683 communities (larger than 20 units). The average community size is 191 units. Market wide occupancies in Indianapolis bottomed out in 2003 at 87.1 percent and have been steadily climbing since to 90.9 percent in 2008. During this same period concessions have declined and 2008 rent growth was 2.2 percent, placing rents at $659 ($.75 per square foot).
The city’s top 50 communities, once threatened to a greater degree by single-family housing, have faired well over the past several quarters. As with most seasonal markets, the Indianapolis market shows a very predictable bell shaped occupancy curve with fourth and first quarter occupancy lows and peaks in the second and third quarters. Until first quarter 2009, the impact of the current recessionary environment had not yet been felt among this segment of the market, with year-over-year improvement in both occupancies and rent growth; however, first quarter 2009 occupancy was unchanged from fourth quarter 2008, where typically a slight up-tick in occupancy would be observed. Additionally, first quarter 2009 occupancy at 92.8 percent, was off .4 percent from first quarter 2008 occupancy. This almost trivial drop in occupancy is quite possibly a passing anomaly, but nonetheless marks a break in a long running improvement in year-over-year occupancy gains among the city’s 50 best communities. Rents increased over the same period among this subset increased 1.16 percent from $863 to $873 ($.89 per square foot). First quarter rents were off $1 from fourth quarter (see graph).
Job growth, hovering just above 14,000 in 2006 and 2007, fueled decent performance of Indianapolis multi-housing property for the past couple years. Job losses in 2008 totaled 1,958. Monthly analysis of the jobs data through 2008 shows moderate declines in the winter months, increases in the summer months and fairly steep declines in employment in the winter months (compared to same month prior year). January and February 2009 monthly employment figures were down 2.4 percent and 2.8 percent, respectively, from same months in 2008. The job losses and the corresponding “doubling-up” effect were likely to blame for the bit of flattening out of market fundamentals observed in the first quarter; however, recent news such as Sallie Mae bringing 2,000 overseas jobs back to the U.S. will bode well for the Indianapolis area and Sallie Mae’s Loan Service and Data Center based on the north side of Indianapolis.
Levels of new construction have remained in check to date. New deliveries totaled 1,100 units in 2008, which fit nicely within nearly 2,200 units absorbed in 2008. New deliveries are poised to increase to 2,200 in 2009. The new supply should absorb in the absence of any further deterioration in the labor market. Given the state of the lending environment, there is considerable risk that much of the anticipated 2,900 units in the 2010 pipeline will actually get financed and be started. It’s not likely that the national slowdown in new construction will be felt locally until sometime after this year.
Most of the construction in the Indianapolis area is concentrated on the north side in Hamilton County, and much of the Hamilton County construction is along the recently extended critical 146th Street corridor. Look for more growth and development in this northern county, recently voted the best place in the nation to raise a family. Additional growth is underway, with more expected over the long term, along the I-65 corridor on the northwest side of town, particularly centered on the I-65/SR 334 interchange. Additional growth is expected in the Plainfield submarket, a west side suburb that has become the city’s transportation and distribution hub.
Downtown Indianapolis is also a vibrant submarket with strong rental demand fueled by continued interest in living in the city’s CBD, very limited opportunities for new rental development and a rapidly growing university (Indiana University-Purdue University at Indianapolis, enrollment 30,300). Rents at select downtown properties top the city including The Waverley, recently completed by locally based JC Hart Co., whose rents top $1.40 per square foot.
The active developers in the Indianapolis area include The Buckingham Companies, Edward Rose, Flaherty & Collins, The Gene B. Glick Company, Hearthview Residential, Herman & Kittle, JC Hart, Keystone Construction, Paragus, Inc., Pedcor Investments and Welbourne Companies.
— Steve LaMotte, Jr., CCIM, is senior vice president of CBRE’s Multi-Housing Properties in Indianapolis, Indiana.