Commercial Real Estate and Office Space Market in Indiana

The Indiana real estate market is bolstered by a balanced and diverse industrial base that provides opportunities for businesses involved in manufacturing, professional and business services, trade and transportation, education, and health services (1). What follows is an overview of the local commercial property market, with a special focus on office space in Indiana.

Office Space Market

With a population of over 800,000 people, Indianapolis is the state's largest city and home to a large percentage of the state's businesses. The city's economy has recently benefited from a significant drop in unemployment rates and is on its way to breaking its own record in terms of private sector employment. In particular, the city has experienced a surge in the number of tech-related jobs, as several digital marketing and social media monitoring firms have recently taken up office space in Indianapolis' CBD. Increased demand for offices in the city center is also evident in Class B properties and refurbished space, with some core districts showing occupancy rates of over 90 per cent. The CBD office market is predominantly favorable to landlords, who see little incentive to make extensive concessions to tenants who extend their lease terms.

The latest data published by Cushman & Wakefield confirm the buoyant state of the market, showing a drop in vacancy rates from 18.2 to 16.9 per cent, as well as a year-on-year rental rate increase of 3.2 per cent. At an average value of $18.81 / sq ft, average asking prices are at an all-time high in Indianapolis, and are especially high in districts like Keystone Crossing ($19.46), the Meridian Corridor ($18.79), and along the I-69 ($18.35). Future growth is expected to concentrate in areas like Northwest Indianapolis, Shadeland, Carmel, and the Keystone Crossing, where a large amount of office space under construction has already been pre-let (2).

The Indianapolis office market is also showing healthy levels of investment sales, particularly those involving properties ranging between 170,000 and 912,000 square feet. Investors are taking advantage of higher yield rates and of the positive outlook of the market, which has been characterized by four consecutive quarters of positive net absorption (3).

Office space is currently available in Indianapolis and Carmel.

Retail and Industrial Space Markets

The retail property market in Indianapolis is characterized by high demand for space in neighborhood shopping centers (which make up for approximately 35 per cent of all retail stock in the city), followed by regional malls (24 per cent) and power centers (19 per cent). According to researchers at Colliers International, the retail sub-markets that are most likely to undergo expansion are areas like Fishers, northwest Indianapolis, and the city center. Retail vacancy rates are markedly low for properties used as restaurants and fast food services (just over 3.5 per cent) (4).

Retail activity is also markedly high in Bloomington, a major urban center where vacancy rates of 10 per cent are in line with the national average for retail space, and rental values across the city average $20 / sq ft. Short-term future prospects are generally good in the area, and especially for landlords, as the retail property market is set to expand with the delivery of new retail space and asking rates are expected to increase moderately and reach $23 / sq ft by the end of 2017 (5).

As for the industrial market, the trend points at a large amount of speculative developments, which have caused vacancy rates to increase slightly, reaching values of 7.6 per cent. Demand is at its highest for warehouse and distribution space in areas to the southwest and northwest of downtown Indianapolis. Approximately 33 per cent of all industrial space in the area is occupied by tenants who are directly or indirectly involved in e-commerce activities (6).

Tax Breaks, Business Incentives and Support

The Indiana Economic Development Corporation has been making ongoing efforts to ensure that the business climate suits the needs of local companies and is conducive to growth. The state is known for its competitive tax structure, which is complemented by a series of tax breaks and incentives designed to boost economic growth across the state (7). Some key schemes that benefit local businesses include:

- Industrial Recovery Tax Credits are available to Indiana-based companies who are looking to invest in older industrial space, providing assistance with the cost of remodeling and renovation work. This program applies to industrial properties that are at least 15 years old and offers credits that range between 15 and 25 per cent, depending on the building's age (8).

- Headquarter Relocation Tax Credits can be applied against corporation taxes and can amount to 50 per cent of a company's relocation costs (9).

- Hoosier Business Investment Tax Credits can help with the costs of capital investment, whether it involves equipment or real estate (10).

Sources:

(1) http://www.bls.gov/eag/eag.in.htm
(2) https://rr.reis.com/markets-classic/indiana/bloomington/retail/
(3) http://www.colliers.com/-/media/files/united states/markets/indiana region/research reports/q2 2015 indiana region office research and forecast report.pdf
(4) http://www.colliers.com/-/media/AF27FEE4D80A494BB05907D320428F52.ashx
(5) https://rr.reis.com/markets-classic/indiana/bloomington/retail/
(6) http://www.cushmanwakefield.com/~/media/marketbeat/2015/07/Indianapolis_Americas_Alliance_MarketBeat_Industrial_Q22015.pdf
(7) http://iedc.in.gov/tax-credits-exemptions
(8) http://iedc.in.gov/tax-credits-exemptions/industrial-recovery-tax-credit
(9) http://iedc.in.gov/tax-credits-exemptions/headquarters-relocation-tax-credit
(10) http://iedc.in.gov/assets/files/Docs/Tax Credits Exemptions/2014 Downloads/HBI_3-14.pdf