The billion-dollar question: can new construction keep up with demand for industrial real estate?

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Insatiable appetite for industrial space continues across the United States through 2017. This is true for Indianapolis as well. Healthy consumer spending and buoyant e-commerce sales are driving demand for warehouse and distribution space. This is pushing vacancy rates to a 17-year low and rents through the roof. But demand is outweighing supply and new construction is struggling to keep up. So what’s the story in Indianapolis?

Industrial Spec Construction Continues

industrial-spaceThe new year began with 1.3 million square feet of speculative construction added to the market. This is just the tip of the iceberg as three times that total remains in the pipeline with delivery expected over the next 12 months. Six of these projects are for facilities in the 250,000 –499,000 square-foot size range. This matches current tenant demand as the average size requirement is approximately 325,000 square feet. Overall, tenant demand remains stable with more than 13.5 million square feet of active requirements in the market.

Asking Rents Tick Up

This tenant demand, combined with new industrial product hitting the market has led asking rents to increase by more than 2.2 percent since last quarter and over 3.0 percent since last year. Investors continue to take notice as 10 acquisitions occurred this quarter with another handful under contract as of this writing.

Vacant Remains Low

The market is in no danger of being overbuilt. Even if no further absorption were to occur this year, the vacant space coming to the market would push current vacancy to around 8.5 percent. This remains below where the market was in 2014. Of course, we know this won’t be the case as 1.5 million square feet of absorption is on the horizon from build-to-suit construction.

Download the complete details from the 2017Q1 Outlook report to find out more about the Indianapolis market and what to expect in the coming months.

 

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