The Return of the ‘Type 2’ Industrial Market

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By Brian Buschuk
Jones Lang LaSalle

While most of the chatter in Indianapolis has revolved around the bulk distribution market and speculative construction, Type II space has waged an impressive comeback.

“Type II” industrial space can be defined as medium sized warehouse or service-center space.  Typically these spaces are between 15,000 and 75,000 SF.  Almost always, the clear heights are between 18’ and 24’ and the dock loading is in the rear of the building with heavier office/auto parking in the front.

The occupiers of Type II space can range from locally-owned small businesses to branch locations of Fortune 100 companies.  The use of the space can also vary greatly from simple warehousing and storage to complex manufacturing.  However, while the Type II space caters to a diverse array of occupants and operations, occupancy and rental rates tend to ebb and flow vs. maintaining a level balance.  In other words, this product sector can be quite volatile.

There has been almost a complete halt on Type II construction over the past 6-7 years in Indianapolis.  Occupancy and rental rates took a plunge in 2008/2009 with the overall economy.  As the economy has improved and consumer confidence has been restored, we’ve witnessed a big comeback with this real estate as well.  Start-up companies are leasing space for the first time.  Existing companies in the area are expanding and/or upgrading.  Larger corporations are adding more branch locations to better service their customer base and so on.

The result:  second-and third-generation space is being gobbled up, vacancy rates are down and rents are rising.  As such, we expect a handful of speculative developments to hit the scene in 2014/2015, with the first announcement is expected in the next few months.  I think we can expect to see buildings with clear heights of 28’ plus which is new for Type II product.

The first developers to capitalize on this trend will certainly be successful and tenants will benefit by have more, newer options to consider.

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