Unprecedented construction leads Indianapolis industrial market

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A year ago, local real estate experts excitedly wondered if the Indianapolis industrial market could continue the upward momentum in 2017. We’re happy to say it has and there is not yet an end in sight! New construction was the name of the game this year.

New construction leads the way

new construction in indianapolis

Last year, the industrial market set a record for the highest amount of net absorption in a single year. This year, the market responded to this increased demand by delivering a record 7.7 million square feet of new industrial inventory. Tenants clearly want this space as nearly half of it came to market
pre-leased. This includes projects that were built on a purely speculative basis. Eleven such buildings delivered in 2017. Five already have a tenant in place and three are fully leased.

Logistics & Distribution, 3PL and e-Commerce is the industrial darling

This activity, driven largely by Logistics & Distribution, 3PL and e-Commerce users, is keeping developers busy. More than 6 million square feet remains under construction heading into 2018, half of which broke ground during the fourth quarter. With this next round already 53.7 percent pre-leased and an additional 2.6 million square feet potentially breaking ground next spring, the construction record set in 2017 may not survive.

Market has runway

Despite all this new inventory, overall vacancy increased by only 20 basis points since the end of 2016. Strong leasing activity, which topped 18.1 million square feet this year, helped keep the market from becoming overbuilt. The razing of a few large and long vacant manufacturing plants also assisted in lowering the vacancy rate.

Outlook

Solid demand combined with new construction led asking rates to increase by roughly 5.0 percent year-over-year. Look for rates to continue to rise early next year before beginning to level off. Even with these rate increases, Indianapolis still offers tremendous value compared to the rest of the Midwest and the U.S. as a whole. As a result, tenants, investors and developers alike will keep Indy at the top of any short-list for future activity.
To read more about the Indianapolis industrial market as well as the surrounding area, download the 2017 Q4 Indianapolis Industrial Outlook report.

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