FOURTH QUARTER 2010 INDIANAPOLIS OFFICE MARKET REPORT Colliers International Indiana Region
Q4 2010 | OFFICE
INDIANAPOLIS
RESEARCH REPORT
STABLE VACANCY LEVELS IN INDIANAPOLIS OFFICE MARKET POSITIVE SIGN FOR 2011 THE BROADER VIEW Employment levels throughout the market grew steadily since 2009, a difference of 0.59 percent from November 2009 to November 2010, a positive sign that the Indianapolis metropolitan statistical area (MSA) is headed in the right direction. Fundamentals in the local economy remain strong. Compared to the rest of the nation, which had an unemployment rate of 9.8 percent in November, Indiana had an unemployment rate of 9.8 percent in November (Bureau of Labor Statistics).
MARKET INDICATORS 2010 Q4
2009 Q4
VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE
The state of Indiana was recognized as the eighth best state in the nation for business climate, according to Site Selection magazine. AIT Laboratories, Allison Transmission, Heritage-Crystal Clean, and Hat World Inc. added or expanded facilities in the Indianapolis MSA during 2010, which helped boost annual employment figures.
EMPLOYMENT 4Q EMPLOYMENT TRENDS TOTAL NONFARM INDIANAPOLIS METRO
CURRENT CONDITIONS
OFFICE-USING INDIANAPOLIS METRO
The Indianapolis office market consists of approximately 71.1 million square feet of space. Colliers International is actively tracking 1,421 office buildings in the market. The Central Business District (CBD) submarket has 23 million square feet, the largest in the market, and 221 tracked buildings.
TOTAL NONFARM U.S. OFFICE-USING U.S.
NEW SUPPLY, ABSORPTION AND VACANCY RATES Square Feet (Thousands)
Vacancy Rate %
900
12
Net absorption was -148,893 square feet during the quarter, a sign that current tenants reduced leased space or exited the market. The Park 100 submarket had positive net absorption of 12,032 square feet, making Park 100 the only submarket to have had positive absorption during the quarter. Submarkets hardest hit by year-end vacancies were Keystone Crossing with 59,165 square feet of negative net absorption, CBD with 55,999 square feet of negative net absorption, and Carmel with 21,708 square feet of negative net absorption.
800 10
700 600
8
500 400
6
300 4
200 100
2
0 -100
2007 Vacancy Rate
2008 2009 2010 New Supply Absorp on
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Despite the market trend of negative absorption, several new leases and renewals were signed during the quarter. Ascension Health leased 92,000 square feet in Eleven Fortune Park, a 155,280-square-foot Class A building in the College Park submarket, for a term of 11 years. Orchard Software leased 40,694 square feet in Meridian Technology Center, a 62,425-square-foot Class B building in the Carmel submarket. DuCharme McMillen and Associates leased 17,499 square feet in Lake Point Center 2, a 87,396-square-foot Class A building, in the Keystone Crossing submarket. Aurora Bank FSB expanded its 10,777-square-foot lease in Castleton Park West, a 54,000-square-foot Class B building in the Castletone submarket, for a term of five years. American Surety Company leased 10,737 square feet in Parkwood Crossing, a 111,202-square-foot Class A building in the
Meridian Corridor submarket, for a term of 11 years. The vacancy rate in the MSA was 11.6 percent, a slight increase from the third quarter of 2010. Uptown and Beech Grove had the lowest vacancy rates during the quarter,2.2 percent and 1.5 percent, respectively. Submarkets with the highest vacancy rates were Fishers/Geist (19.7 percent), Keystone Crossing (17.2 percent), and Airport (16.6 percent). CBD, which consisted of 2.6 million square feet of vacant space by the end of the quarter, had a vacancy rate of 10.9 percent, a slight increase from the third quarter and a 1.7 percent increase from the fourth quarter of 2009. CBD space continues to draw in tenants, especially due to downward pressure on asking rental rates. Asking rental rates were steady during the quarter. Hendricks County had the highest rates with an average of $20.19, followed by Far North Hamilton County (19.64) and CBD ($19.54). Compared to asking rates from the fourth quarter of 2009, when rates were between $16.90 and $17.30 across all classes and submarkets, rates were between $17.30 and $17.60 during the fourth quarter of 2010. The increase in asking rates could be attributed to higher occupancy levels, the lack of new construction in non-medical office buildings, and shorter lease terms. Construction of non-medical office buildings remained at a standstill; a trend that has existed in the market since 2008. However, a 200,000-squarefoot office building is scheduled for construction near the Indiana University-Purdue University Indianapolis campus during the first quarter of 2011. The building, which will be constructed by a joint venture between Browning Investments and Duke Realty Corporation, will house groups affiliated with the university.
AVERAGE ASKING RENTAL $25.00 $20.00 $15.00 $10.00 $5.00 $0.00
2007
2008
2009
2010
A
$19.15
$19.14
$18.86
$18.64
B
$15.70
$16.16
$16.73
$16.45
C
$12.89
$13.72
$14.59
$15.40
Average asking rental rates bottomed out in Class A product during 2010. Rental rates in Class B product have varied the most, stabilizing at $16.45 per square foot throughout the Indianapolis market. The lack of new construction in the market has kept rates relatively low, compared to other metros in the Midwest region.
IN THE MONTHS AHEAD The local forecast on employment figures is positive, especially for employees of professional services. Funds are steadily becoming available, especially by local banks, which is promising to commercial borrowers. Landlords are expected to respond positively to tenants interested in renewing leases or renegotiating existing terms. As focus turns to Downtown Indianapolis in anticipation of major events like the grand opening of the expanded Indiana Convention Center, new JW Marriott Indianapolis, and 2012 Super Bowl, new office tenants will join the submarket as a result.
Ascension Health leased 92,000 square feet in Eleven Fortune Park. Ascension Health, which is a health care system based in St. Louis, Mo., will move into the space during the first quarter of 2011. The Class A building, 155,280 square feet in size, was built in 1989 and it is 84 percent occupied.
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Submarket
Class
Airport Airport Airport Airport Beech Grove/SE County Beech Grove/SE County Beech Grove/SE County Beech Grove/SE County Boone County Boone County Boone County Boone County CBD CBD CBD CBD Carmel Carmel Carmel Carmel Castleton Castleton Castleton Castleton College Park College Park College Park College Park Edgewood/South County Edgewood/South County Edgewood/South County Edgewood/South County Far North Hamilton County Far North Hamilton County Far North Hamilton County Far North Hamilton County Far South Johnson County Far South Johnson County Far South Johnson County Far South Johnson County Fishers/Geist Fishers/Geist Fishers/Geist Fishers/Geist Greenwood Greenwood Greenwood Greenwood Hancock County Hancock County Hancock County Hancock County
A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL
Bldgs. Total Total Vacant Vacancy Net New Under Inventory SF SF Rate Absorp on Supply SF Construc on SF 3 287,747 121,986 42.4 0 26 1,022,616 44,483 4.3 0 21 398,223 117,945 29.6 0 50 1,708,586 284,414 16.6 0 12 294,467 6,500 2.2 0 8 136,530 0 0 0 20 430,997 6,500 1.5 0 1 106,000 0 0 0 8 162,934 32,900 20.2 0 14 197,918 15,756 7 (2,000) 23 466,852 48,656 10 (2,000) 31 9,547,265 1,291,793 13 (49,442) 126 10,448,386 972,100 9.2 (8,060) 64 3,015,156 304,921 10.2 1,503 221 23,010,807 2,568,814 10.9 (55,999) 17 2,079,085 397,969 18.1 (21,708) 58 2,410,915 368,663 15.3 0 21 354,075 23,090 6.5 0 96 4,844,075 789,722 15.9 (21,708) 6 470,212 54,662 10.8 (3,818) 51 2,143,809 338,776 15.8 0 13 208,297 13,700 6.6 0 70 2,822,318 407,138 14.3 (3,818) 5 699,611 196,566 28.1 0 43 1,804,917 242,146 12.9 (8,506) 12 151,370 3,665 2.4 0 60 2,655,898 442,377 16.3 (8,506) 0 0 0 0 0 34 1,194,176 49,558 4.1 0 24 523,057 124,633 23.8 0 58 1,717,233 174,191 10.1 0 2 156,018 0 0 0 22 382,157 30,804 8.1 0 8 422,851 42,637 10.1 0 32 961,026 73,441 7.6 0 0 0 0 0 0 4 48,275 0 0 0 5 156,295 0 0 0 9 204,570 0 0 0 6 1,055,337 109,812 10.4 0 48 1,562,108 439,179 28.1 0 12 222,295 9,800 4.4 0 66 2,839,740 558,791 19.7 0 3 138,894 44,652 32.1 0 39 949,816 120,284 12.7 762 14 305,291 57,711 18.9 0 56 1,394,001 222,647 16 762 1 40,000 0 0 0 8 209,402 1,400 0.7 0 8 124,343 15,245 12.3 0 17 373,745 16,645 4.5 0 -
Avg. Rent
$14.14 $13.10 $13.88 $13.85 $10.19 $13.60 $12.76 $19.58 $19.61 $19.15 $19.54 $18.91 $15.20 $15.59 $16.87 $17.45 $16.09 $14.88 $16.30 $16.74 $15.39 $13.61 $15.89 $13.14 $14.70 $14.32 $20.12 $14.37 $19.64 $10.00 $10.00 $21.06 $17.17 $18.49 $17.37 $20.67 $17.86 $18.15 $18.39 $0.00 $15.45 $14.87 $15.19
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Submarket
Class
Hendricks County Hendricks County Hendricks County Hendricks County Keystone Crossing Keystone Crossing Keystone Crossing Keystone Crossing Lawrence/East County Lawrence/East County Lawrence/East County Lawrence/East County Meridian Corridor Meridian Corridor Meridian Corridor Meridian Corridor Midtown Midtown Midtown Midtown Morgan County Morgan County Morgan County Morgan County North Shadeland North Shadeland North Shadeland North Shadeland Park 100 Park 100 Park 100 Park 100 Shelby County Shelby County Shelby County Shelby County Speedway Speedway Speedway Speedway Uptown Uptown Uptown Uptown
A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL A B C TOTAL
Bldgs. Total Total Vacant Vacancy Net New Under Inventory SF SF Rate Absorp on Supply SF Construc on SF 1 100,000 42,200 42.2 0 22 330,971 21,597 6.5 0 16 266,620 22,352 8 (1,050) 39 697,591 86,149 12.2 (1,050) 30 3,318,770 662,157 18.2 (59,739) 39 1,407,321 217,403 15.5 574 12 284,326 42,330 14.9 0 81 5,010,417 921,890 17.2 (59,165) 0 0 0 0 0 39 2,754,361 28,687 1 0 28 787,504 210,151 26.4 0 67 3,551,865 238,838 6.7 0 22 2,834,802 193,197 6.5 (9,441) 32 1,428,070 162,379 11.4 0 13 229,221 16,770 7.3 0 67 4,492,093 372,346 8.1 (9,441) 2 198,000 0 0 0 62 2,666,613 127,905 4.8 0 53 1,444,161 61,100 4.2 0 117 4,308,774 189,005 4.4 0 0 0 0 0 0 2 51,176 0 0 0 3 43,525 0 0 0 5 94,701 0 0 0 0 0 0 0 0 42 1,304,415 106,603 8.2 0 26 491,470 50,985 10.4 0 68 1,795,885 157,588 8.8 0 11 1,201,002 36,892 5.9 33,403 31 1,845,879 156,969 7.3 (21,371) 11 314,183 40,563 12.9 0 53 3,361,064 234,424 7.3 12,032 0 0 0 0 0 7 123,894 12,624 10.2 0 8 122,267 22,200 18.2 0 15 246,161 34,824 14.1 0 0 0 0 0 0 30 984,056 169,139 17.2 0 26 590,142 83,636 14.2 0 56 1,574,198 252,774 16.1 0 0 0 0 0 0 45 1,928,153 34,436 1.8 0 30 646,425 23,483 3.6 0 75 2,574,578 57,919 2.2 0 -
INDIANAPOLIS MARKET
1,421
71,137,175
8,139,093
11.6%
-148,893
0
Avg. Rent
$17.50 $17.39 $14.05 $20.19 $19.90 $16.75 $15.96 $19.00 $14.63 $6.93 $12.70 $20.89 $15.27 $15.17 $18.40 $16.20 $13.21 $14.77 $15.38 $14.12 $15.01 $20.40 $15.64 $12.14 $15.56 $15.10 $13.33 $14.85 $14.01 $12.35 $13.62 0
$17.31
480 offices in 61 countries United States: 135 Canada: 39 Latin America: 17 Asia Pacific: 194 EMEA: 95 •
$1.9 billion in annual revenue
•
2.4 billion square feet under management
•
Over 15,000 professionals & staff
•
Over 4,700 brokers
COLLIERS INTERNATIONAL INDIANAPOLIS 900 East 96th Street Suite 350 Indianapolis, IN 46240 TEL 317 663 6000 FAX 317 663 6554
Diana Nyirenda Senior Research Analyst | Indiana Region diana.nyirenda@colliers.com
The information contained in this report was generated on January 23, 2011.
Orchard Software leased 40,694 square feet in Meridian Technology Center at 801 Congressional Boulevard in Carmel. Orchard Software, which is headquartered in Missouri provides educational software to schools.
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Colliers International | Indiana Region 900 East 96th Street, Suite 350 Indianapolis, IN 46240 TEL FAX
317 663 6000 317 663 6554
www.colliers.com
The information contained herein was obtained from sources we consider reliable. We cannot be responsible for errors, omissions, withdrawal from the market or change in price.