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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 is what the market needs to continue to be driven by distribution, according to Cassidy Turley’s 2013 Market Report.
Indianapolis is a top choice for companies looking for industrial space in the U.S., Weishaar explains. The central location of Indianapolis in the lower 48 states combined with the city being a FedEx hub, and Indiana becoming a right-to-work state last year, make the area attractive to potential industrial developers.
“We typically remain on that top five choice,” says Weishaar. “Even though we’ve had kind of a rocky economy for the several years, Indiana is a pro-business state and remains strong.”
Indianapolis is at the forefront of speculative development in the Midwest. Nearby cities with spec industrial space under construction include Chicago with 1.73 million square feet, Cincinnati with 900,000 square feet and Minneapolis with 350,000 square feet, according Cassidy Turley.
The Indianapolis industrial market is also seeing a rise in demand for manufacturing space, something that Cassidy Turley predicts will continue through 2013. In 2012, nearly 560,000 square feet of manufacturing space was absorbed, causing the vacancy rate in that segment to decline by 80 basis points to 2 percent.
In 2012, Indianapolis’ industrial market also experienced a surge of build-to-suit activity. Some of the largest build-to-suits completed include a 600,000-square-foot addition to an industrial facility for SMC Pneumatics and a 376,000-square-foot development for Regal Beloit.
Speculative projects under construction include: a 622,000-square-foot facility by ProLogis and locally based Browning Investments leased to Hartz Pet Products; Project One, a 456,000-square-foot development by VanTrust Real Estate; a 600,000-square-foot building at All Points at Anson by Browning and Duke Realty; a 795,000-square-foot project in AmeriPlex by Atlanta-based IDI; and a 771,000-square-foot warehouse in GreenParke by Chicago-based Verus Partners.
Net demand for industrial space statewide is expected to range between 7.5 million and 8 million square feet in 2013, according to Cassidy Turley. If achieved, this would cause vacancy rates to drop another 60 basis points from their current level.
In Southeast Indiana, trucks are moving, product is being stocked and people are being hired at Amazon’s new 1-million-square-foot fulfillment center at the River Ridge Commerce Center in Jeffersonville. Amazon signed a lease for the industrial space in 2011 and opened the distribution center in October.
The impact of the Amazon facility will not be limited to Jeffersonville, but Cassidy Turley predicts the industrial market to see related industries that support Amazon to begin to occupy space around the region.
In Northwest Indiana, a rail line is being extended at the 800-acre Inland Logistics Port at Kingsbury that will connect Kingsbury Industrial Park in LaPorte to a main CSX rail line. The project promises to enhance accessibility for the region and serve as a major draw for distribution and advanced manufacturing enterprises.
— Rachel Goff