The Indianapolis industrial market posted a strong showing last year despite the economic challenges impacting the nation. More than 4.3 million square feet of space was absorbed in 2008, and the region’s industrial vacancy rate closed at 7.4 percent, a decrease of 1.1 percent from the start of the year.
Several factors contributed to the area’s ability to move forward, not the least of which is the area’s long-standing stature as the Midwest’s crossroads for distribution.
Construction continued, but on a more restrained level. Approximately 1.9 million square feet of new industrial space was completed last year, which is only a quarter of the volume — 8.8 million square feet — of new space added in 2007. A significant component of this new inventory was build-to-suit or expansions by existing owners or users.
Additionally, rental rates for industrial space remained level; rents have not moved in either direction since 2007. The rates have remained low compared to other Midwest cities, which has attracted new regional and national players while encouraging local businesses to maintain and renew their existing leases.
As in past years, modern bulk distribution space has led the charge of new activity. Approximately 4.3 million square feet of modern bulk was absorbed last year, primarily driven by seven new companies deciding to stake a position in Indianapolis. Nearly all of this activity occurred in the Southwest submarket, which is the region’s largest industrial submarket with 59 million square feet of product. The submarket continues to be a driver in the industrial arena and its stature has been significantly heightened by the completion of a new terminal at the Indianapolis International Airport last November. The terminal is expected to spur industrial, as well as office and retail, development in this submarket. Its location near four major interstates positions this area as a key to the region’s future growth.
Three buildings are underway in the Southwest. Browning Investments and Duke Realty Corporation are nearing completion of a 534,000-square-foot speculative facility in All Points Midwest, an industrial park in Duke’s Anson mixed-use development. OKI Systems Limited will add 60,000 square feet of office showroom space in Plainfield, Indiana, and Graybar has broken ground for its 65,000-square-foot facility in Sunbeam Development Corporation’s AmeriPlex Business Park along Interstate 70. There is another 6.7 million square feet of proposed development in the Southwest submarket, including several large projects on 1,500 acres just 9 miles west of the airport.
Other active submarkets include the Northwest and East. As in the Southwest, these submarkets offer developers 10-year real estate tax abatements and easy access to major interstates. The East submarket will see considerable new space when Browning Investments finishes two of four buildings planned in Axcess 70, a 153-acre industrial park in Mount Comfort, Indiana. Scheduled for completion in early spring, the first buildings will offer 423,000 and 250,000 square feet of space.
New construction underway in the Northwest includes a 340,000-square-foot facility for Medco Health Solutions. Two other projects will be completed this year, including a 300,000-square-foot building by US Cold Storage and a 40,000-square-foot building in the Lebanon Industrial Center.
Other significant developments currently underway include Cooper Tire’s 804,000-square-foot building in Franklin Tech Park, which is located in the South submarket. When it is complete in 2011, the facility will replace the company’s current warehouse in Dayton, Ohio. Several major projects are coming out of the ground in the Northeast submarket, including Monarch Beverage’s 475,000-square-foot facility in Lawrence, Indiana; SMC Corporation of America’s 625,000-square-foot building within the Noblesville Corporate Campus; and Verus Partners’ 90,000-square-foot project in the Saxony corporate campus in Fishers, Indiana.
While the pace of speculative construction has slowed considerably, several owners and developers remain active in Indianapolis. Across the market, 4 million square feet of new space is underway, with another 15 million square feet proposed. Moving forward, early numbers for the first quarter point to approximately 1.1 million square feet of positive absorption and no significant changes in the area’s industrial vacancy rate. Lease rates could inch up slightly as owners look to recoup the impact of new tax assessments in 2009. As for construction, developers will be very selective and look for joint venture projects with REITs. The slowdown in speculative construction will continue into 2010.
— A principal and senior vice president in Colliers Turley Martin Tucker’s regional office in Indianapolis, Luke J. Wessel, SIOR, specializes in industrial sales and leasing throughout the greater Indianapolis metropolitan area.