By Graham Summers
Jones Lang LaSalle
“The commercial real estate market has hit rock bottom”
“I know that building has a lot of vacancy”
“Nobody has been a Tenant in that space for years”
These are just a few of the many comments brokers hear about the office leasing market in Indianapolis when speaking casually with clients and the business community.
If you selectively evaluate media reports and base opinions on the overall economy, many of those statements may seem valid. However, if you are a real estate professional, a large tenant in the market, or somebody that tracks the stats, you know that our market is not nearly as soft as it’s perceived to be. In fact, the market is tightening, there is speculative construction breaking ground, and several large users have recently absorbed several of the remaining vacancies in the market.
In Q4 2009, occupancy levels in the 1 million square foot Keystone at the Crossing office complex were around 70 percent. In 2011 and 2012, the park completed roughly 250,000 square feet of new/expansion deals, which today have resulted in occupancy levels above 90 percent.
In addition, the market is scarce for large vacancies, and as a result, many prominent buildings cannot offer deals for tenants larger than 15,000 square feet. JLL Managing Director John Robinson and I recently tested our market knowledge by listing the remaining large vacancies in Class-A, suburban buildings, and we were left counting on just two hands.
Smaller availabilities do exist in most large buildings and office parks, but those vacancies do very little to sway the market overall. They have a minimal impact on building valuation, and unfortunately don’t build significant leverage for prospective and existing Tenants.
Despite the overall tone of these statistics and the general trend of the market, landlord-vs.-tenant leverage remains situational. Great opportunities for tenants do still exist, and they’re mostly impacted by credit, size, building ownership/condition, location and timing.
Overall, the office leasing market in Indy has weathered the storm. Fortunately, many tenants are back in growth mode and seeking expansion. In addition, fewer tenants are attempting to shed excess space, and the sublease market has diminished as a result. In general, the market has shifted from Tenant favorable to neutral, and the needle is gradually moving again.