Despite the slow economic recovery nationwide, there is life in the commercial real estate investment market in Indianapolis, especially in the office sector. Nearly 900,000 square feet of office properties traded hands in Indianapolis in 2011, for a total of $119 million, which is a 70 percent increase over office sales in 2010, and four times the sales volume in 2009.
Major property sales such as Intech I/II/III, 9225 Priority Way Dr. in the Precedent Office Park and Heather Glen II marked a return of stabilized office building sales in Indy last year.
The increase in sales velocity is expected to continue with several major office properties currently on the market, including the Capital Center downtown, Pennwood Office Park in Carmel and the Ascension Health Ministry Service Center in the northwest submarket.
Cassidy Turley is tracking an additional 3 million square feet of office properties expected to come to market this year, or in 2013.
Continued improvement in office fundamentals is an encouraging sign for investors. With 237,000 square feet of positive net absorption in the fourth quarter of 2011, the overall vacancy rate for Indianapolis now stands at 20.3 percent.
No new speculative construction, three consecutive quarters of positive net absorption, strong small business growth and a diversified employment base all make Indianapolis an attractive option among its Midwestern peers.
The office market also is benefitting from the state’s pro-business governor and legislature, our balanced budget, low taxes and low overall cost of doing business. All of these factors combine to provide Indianapolis with the edge necessary for continued steady economic growth.
INVESTMENT MAGNET
Our favorable investment environment is now receiving attention from out-of-state investors as well. Frustrated by low yields and intense competition in the primary, tier-one cities, investors from Pennsylvania, Missouri, Massachusetts, Georgia and Canada have all invested in stabilized office properties in the Indianapolis area during the last 3 years.
The cap rate spread between the tier-one cities and Indianapolis can range from 200 to 500 basis points. Class A suburban office properties in Indianapolis sell at cap rates ranging from 7 percent to 10 percent (depending on tenant credit quality, lease terms, location, age and the condition of the property), while similar assets in primary markets such as Washington, D.C., can trade at cap rates below 5 percent.
The last piece of the puzzle is finally falling into place in 2012, as lenders are now targeting stable secondary markets like Indianapolis to place capital. For larger assets, CMBS funding is also beginning to become available.
DEFINING CHARACTERISTICS
According to the 2010 census, Indianapolis is the 12th largest city in the United States. It’s the largest city in Indiana as well as the state capital. Due to its central location, Indianapolis is within a one-day drive of 75 percent of the nation’s population.
The city gets a further boost from rapidly growing industries such as life sciences, education, information technology, high-tech startups, logistics and digital marketing. Major employers such as Indiana University Health, St. Vincent Hospital, ExactTarget, Indiana University-Purdue University Indianapolis, AIT Laboratories, Rolls Royce, Backhaul Direct and Angie’s List are all growing in our city.
The bottom line is that the city offers an extremely well diversified, stable economy with steady growth that translates into attractive high-yield, low-risk opportunities for investors.
Will Indy ever be a high-growth market? Only time will tell. But for now, we here in the “Crossroads of America” are doing just fine with slow and steady growth.
— Rebecca Wells, CCIM, is senior vice president of capital markets for Cassidy Turley Indianapolis.