Indianapolis has more speculative industrial space under construction than any other market in the Midwest as developers try to capitalize on about four million square feet of tenant interest in the market.
A survey by commercial real estate services firm Jones Lang LaSalle determined there is 2.5 million square feet of spec industrial space being built here, compared with 1.73 million square feet in Chicago, the city with the next-highest level of activity.
JLL said 900,000 square feet is under construction in Cincinnati and 350,000 square feet is coming on line in Minneapolis, with no spec space being built in St. Louis, Columbus or Louisville.
After JLL completed its research, Chicago-based Verus Partners announced it had broken ground on a 771,000-square-foot bulk warehouse building in GreenParke at Airwest Business Park in Plainfield, bringing the local spec total under construction to more than 3.2 million square feet. Luke Wessel of Cassidy Turley is in charge of leasing the space.
JLL cited the Indianapolis market's traditional strengths—central location and affordable land—as well as low vacancy rates and rising rents as reasons for the building activity here. The firm said the vacancy rate for bulk distribution is 4.5 percent and that rents are up about 10 percent since 2010, from an average of $2.70 a square foot to the low $3 range today.
Jake Sturman, a senior vice president in the local office of JLL, said the availability of large blocks of space here has been one of the market's strengths. "Tenants who have chosen Indiana come here because the building is already there," he said.
Sturman said the spike in building starts in 2012 will play to that strength, but it could dampen construction activity in 2013 if the space isn't absorbed quickly. "If vacancies are up over 5 percent, you probably won't see any new starts in this market [in 2013]."
Net absorption of space through the first three quarters of this year was 3.2 million square feet, according to JLL statistics. That's a strong number, Sturman said, but not as strong as 2011, partly because of a shortage of available space. It's not because of a lack of demand, he said, noting that tenants are actively looking for 4 million square feet of space.
Besides the recently started Verus Partners building in Plainfield, there are four other projects under construction:
-ProLogis and Browning Investments are wrapping up a 622,000-square-foot bulk warehouse building on Ronald Reagan Parkway, just north of Stafford Road. It comes online in December. Elizabeth Kauchak at ProLogis and Dennis Dye at Browning are the leasing contacts.
-Atlanta-Based Industrial Developments International is building 795,000 square feet of spec space in Ameriplex, near Indianapolis International Airport. The project started in May and is to be completed in mid-January. Andrew Morris of Summit Realty has the listing.
-Kansas City-based VanTrust Real Estate LLC is wrapping up a 450,000-square-foot spec building it started in May at Stanley and Perry roads in Plainfield. Glenn Davis of Colliers International is listing the space, which should be available in mid-December.
-A joint venture of Duke Realty and Browning Investments started a 600,000-square-foot building, expandable to more than 1 million square feet, in July and expects to finish it in late January. The building is in AllPoints at Anson in Whitestown. Charles Podell, a senior vice president at Duke Realty, said it's the only spec building under construction in Boone County and on the northwest side of the Indianapolis market. Leasing is being handled by Duke's Mark Hosfeld, Jay Archer and Kate Ems.
Podell said the current wave of speculative building was made necessary in large part because giant online retailer Amazon leased nearly 2 million square feet in 2011, depleting the market of available space. Amazon leased almost 926,000 square feet from Cabot Properties at 800 Perry Road and another 900,000 from Transpacific Development Corp. at 701 S. Girls School Road. It already had about two million square feet split between Duke's AllPoints at Anson and a ProLogis building at Airtech Park. Podell said the city lost out on some big deals this year because space wasn't available.
At least one local developer that had contemplated starting a spec industrial building this fall has decided to wait until next spring to start construction. Ambrose Property Group founder Aasif Bade said his firm is still looking for a capital partner to help it develop a 300,000-square-foot bulk warehouse building on a site it owns at Metropolis and Airtech parkways in Plainfield. It would be the company's first industrial project.