By Steve LaMotte Jr., CBRE
With 2021, a record year for asset appreciation and fundamentals, 2022 marked a turning point in the apartment space across the nation. Multifamily leasing velocity, rent growth and occupancy levels have seemingly reached their current peak levels and begun to cool. Instability in the capital markets throughout much of 2022 encouraged many on both the buy and sell sides to wait it out, looking for signs of stability.
However, despite the turbulence and the pause, the multifamily sector has remained resilient and is expected to maintain its claim as the preferred asset classification in 2023. Further, metro Indianapolis has been a standout performer in every meaningful measurement.
Steve LaMotte Jr., CBRE
Now widely regarded as an emerging star of the Midwest, metro Indianapolis has earned its place as the nation’s rent growth leader in the back-to-back months of October and November of 2022, according to Yardi Matrix. The metro has outperformed many major markets while maintaining its characteristic affordability.
According to research from CBRE Econometric Advisors, the average metro rent of $1,200 per unit ($1.30 per square foot) shows that metro Indianapolis will deliver outsized rent growth in times of distress while remaining one of the most affordable metro’s in the nation with a 25 percent rent-to-income ratio. This critical feature positions the mid-size Indianapolis market as an effective hedge investment strategy. It was well demonstrated during the coronavirus as Indianapolis performed remarkably well throughout the pandemic.
Multifamily occupancy rates are elevated compared with other periods and other markets across the U.S. Additionally, overall demand for multifamily is expected to remain steady as the gap between the cost of owning has never been higher, even in what had historically been an affordable owner-occupied market. Indianapolis submarkets that have performed exceptionally well include Anderson, Hamilton County and the Upper West Side, with average occupancy above 96 percent, according to CBRE Econometric Advisors.
New construction levels remain in check, with Hamilton County reporting 890 units completed and a net absorption of 520 units year to date. Downtown has the second-highest units completed at 298 units.
A deep history of investment into specific areas identified for intentional growth has helped position Indianapolis as a thriving metro. Several drivers behind the metro’s tremendous success within the apartment space include:
Life sciences — Indianapolis’ life sciences sector provides residents with notable economic opportunity. Ranked No. 2 in the nation for worldwide life sciences exports, central Indiana’s healthcare and life sciences sector has an $84 billion annual economic impact, according to Indiana’s Economic Development Corp. (IEDC).
With significant employers such as Eli Lilly & Co., Elanco, Anthem, Roche Diagnostics, IUPUI and Dow AgroSciences, the region’s life sciences companies look for Indianapolis’ innovation ecosystem and focus on emerging technologies as a reason to choose and grow in the area.
Technology — From tech giants to startups, a myriad of companies have discovered Indianapolis as a place to call home for their tech operations. The Indianapolis region has formed a position of power in marketing technology, anchored by giants such as Salesforce, Infosys, Genesys and TechPoint.
The city’s tech ecosystem has emerged as one of the strongest among mid-size cities in the nation. According to TechPoint research, almost half of Indiana’s information technology workforce calls the Indianapolis region home. Overall, CBRE research has placed Indianapolis as the 14th-fastest growing tech market in the nation.
Logistics and warehousing — According to the IEDC, the logistics sector is a $78 billion industry statewide and has placed Indianapolis atop the mid-size markets nationally. As the “Crossroads of America,” over $650 billion in goods move through Indiana annually, making it the fifth-largest state for commercial freight traffic and an ideal location for warehousing and logistic hubs.
Additionally, 80 percent of the nation’s population is within a 24-hour drive of the metro. Indiana has established itself as an integral location for sustainable logistics growth with dozens of airports, 4,000 miles of rail and 14 interstates.
Higher education — The Indianapolis metro area draws on close relationships with some of the state’s top universities, such as Indiana University, Purdue University, The University of Notre Dame, Rose-Hulman Institute of Technology and Butler University. It continues to benefit from a statewide focus to reinvest in education to not only educate but retain top talent in Indiana.
As a result, the state has the second-highest rate of higher education in the Midwest, fostering a growing, young, talented and educated labor force increasingly choosing to call this their permanent place of residence.
According to the IEDC, in 2022, 218 companies committed to locate or expand in Indiana, investing more than $22.2 billion, a 250 percent increase from 2021. Over the past year, Indiana has taken on a 5E strategic vision that has delivered several successes for the state, such as modernizing economic development toolkits, enabling growth and innovation in future-focused industries, and building international partnerships to increase global reputation.
The collective growth and accomplishments of the past year have contributed to an influx of new and institutional investment setting up both the metro and the state well for continued stability.
It’s noteworthy that Indianapolis is now routinely mentioned in the same breath as “big brother” markets of Denver, Dallas, Nashville, Charlotte and Atlanta, to name a few. In short, the capital has noted what’s happening in this emerging powerhouse market, and the number of new capital sources attempting to get placed in Indianapolis is at a record level.
With focused growth in sustainable sectors, responsible government and resoundingly stable fundamentals, the outlook is bright for this emerging Central U.S. market, which is expected to remain high on the national leaderboard.
Steve LaMotte Jr. is an executive vice president with CBRE. This article originally appeared in the February 2023 issue of Heartland Real Estate Business magazine.