Indianapolis Office

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What area is your expertise?
• I specialize in landlord representation, building sales and tenant representation in the Indianapolis and surrounding Central Indiana region.

What trends do you see presently in office development in your area?
• Medical space has developed at a very rapid pace, single-story garden office space has been prevalent and new Class A space with Interstate 465 frontage and signage has been very successful in new lease-up.

Who are the active office developers in your area?
• In addition to Duke Realty and Lauth Property Group, who have developed the most office product over the last 5 years, Shamrock Builders, Opus, Panattoni Development Co., J. Greg Allen Builder and Edgeworth Laskey Properties are all currently active.

Please name new significant office developments in your area. What impact will these projects have on the market?
• The Northwest submarket is undergoing growth with over 300,000 square feet of new construction underway which includes Duke Realty’s 154,000-square-foot Woodland Corporate Park VI and Lauth’s 151,000-square-foot Intech Three. The North/Carmel submarket currently has four multi-tenant projects underway totaling 200,000 square feet, including Panattoni’s 142,000-square-foot project at 1320 City Center Drive. Edgeworth Laskey Properties is currently building the 151,000-square-foot Lake Point Center 5 in the northeast submarket. The Keystone submarket will soon have Duke’s 120,000-square-foot River Road Two.

Lauth just completed construction of its 135,000-square-foot Meridian Corporate Plaza Three Building at 103rd and College. Duke has continued its successful Parkwood Crossing development originally developed east of Meridian Street on 96th (which is now fully built out) by crossing over to the west side of Meridian on 96th Street to develop land it has held for many years.

Duke's first building at Parkwood West, One West, is a five-story, 185,000-square-foot building with 37,000 square feet floor plates. Impressively, the building was 100 percent leased upon completion. All of these projects have been asking and consistently obtaining strong rental rates in the low $20s per square foot, which are at the top of our suburban market rents. Since these large blocks of new Class A space have been absorbing at a strong space, it is older Class A and Class B buildings that will be feeling the pressure as these tenants leasing new space leave those older buildings.

Where is the majority of development taking place? Why is this area doing well?
• Most of the new office development activity is located very close to Interstates 465 and 69. Ease of access for employees and visitors as well as close priximity to popular housing and school systems has driven these locations.

What area do you expect to be the next big development market? Why?
Northern suburban areas like Zionsville, Fishers and Noblesville are starting to see more activity and demand than 3 to 5 years ago. This is due to more housing and retail amenities being located in these northern trade areas.

What areas are doing well in terms of office leasing? Which areas are struggling with office leasing?
The North Meridian and Keystone Crossing submarkets continue to see the most demand and activity followed by the northeast and northwest submarkets. The east, west and south submarkets have substantially less demand and therefore tend to have higher vacancy rates than other parts of the city. Downtown has seen no new construction of office product with vacancies lower than in the suburbs.

What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in the next year?
The tightening of credit across the country will make it more difficult for most to move ahead with new or planned office developments. Developers will still see opportunities in selected areas for certain niche product types like medical projects and life sciences. I believe there will be pressure to lower interest rates from all industries and from consumers. The Fed will watch inflation very closely and is very concerned about it, but may abandon the fight over inflation and continue to lower interest rates to try and fend off a potential recession. There is the possibility of stagflation — a possibility Alan Greenspan alluded to in his latest book, “The Age of Turbulence” — when slow growth, rising unemployment and inflation all strike at the same time.

What is the status of job growth/(un)employment rates and what bearing will it have on the office market?
Economic expansion and job creation are critical to sustaining positive trends in our office market. Inflationary fears, especially with increased prices for fuel, challenge companies to maintain profit growth. Additionally, consumer spending and confidence are critical elements to the market.

Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in the next year to absorb a great deal of office space? What areas will be affected?
Indianapolis has a great deal of large insurance users throughout Central Indiana. When these companies expand, our market benefits. When they contract like Conseco, for example, they bring substantial vacancy and competitive space to the market. City and state uses, medical tenants, and life sciences companies are all absorbing space at this time.

Would you like to make any additional observations about the office market in your area?
The Indianapolis metropolitan economy will likely outperform the national average throughout 2008. New speculative office construction will continue to come online. Due to this, we may continue to see some increases in the vacancy rate. However, Indianapolis will continue to record solid positive absorption and average asking rates may show an increase in 2008. I do not believe we will see the same amounts of absorption and activity over the last several years as the economy and Corporate America start to take a breather after 5 to 6 years of very strong growth and expansion.

Submitted by Darrin Boyd, principal/senior vice president with the Indianapolis office of Colliers Turley Martin Tucker.

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