Capital improvements boost Indianapolis office real estate

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The Indianapolis office market picked up right where it left off during the first quarter of 2017. Since 2015, the market has seen $1 billion in sales activity. With so much product trading hands, many owners (both new and pre-existing) are opening their pocketbooks for capital improvements to their properties. Now that these capital improvements are concluding, the first quarter of 2017 brought a reclassification of building inventory.

What do capital improvements mean for tenants?

tenant lounges taking shape with recent capital investmentsWell, there’s good news and bad news. The good news is that many of these improvements are leading to renovations of common areas and the addition of building amenities. As building owners compete, companies are looking for the biggest bang for their buck. With a lot of focus on workplace satisfaction, many employees are reaping the benefits of these upgraded spaces. At the same time, no amount of improvements can change the location of a building. The CBD is seeing the most activity, propelled by the tech sector’s downtown interest.

The bad news is that due to the high level of investment made to upgrade buildings, landlords have been able to push asking rents up even though vacancy rates have also increased. The overall average asking rent has risen by 5.5 percent and the Class A average by 6.8 percent year-over-year. At the same time, overall vacancy has risen by nearly one full percentage point. New construction also added to the rise in asking rates. These new projects command top dollar in premier locations. These spaces are in high demand and are 80.0 percent pre-leased.

As we move into the summer months, we believe that the vacancy rate will continue to rise as large blocks of space (greater than 20,000 square feet) are slated to become available this year. This creates the opportunity for companies, particularly large tenants, to expand in once-constricted submarkets. However, the market will begin to stabilize later in the year when companies move into their new and expanded office spaces.

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