No room in the industrial market as occupancy soars

The Indianapolis-area’s thriving industrial real estate market ended 2016 on a high note, with record-setting occupancy gains translating to super-low vacancy.

In the fourth quarter alone, industrial tenants absorbed more than 1.8 million square feet, bringing the total amount for the entire year to 8.3 million square feet—the highest total in the history of the local market, according to Cushman & Wakefield’s latest industrial report.

The strong occupancy gains pushed vacancy in December down to 3 percent, nearly half of what it was at the end of 2015, when it stood at 5.8 percent.

“We’re certainly at that vacancy level that warrants going out and building new product, which is exactly what’s happening,” said Michael Weishaar, a Cushman & Wakefield industrial broker.     

After no new buildings were delivered in the third quarter, the last three months of 2016 produced four smaller warehouses totaling 635,000 square feet. Of the amount, it was split almost evenly between build-to-suit space for a specific tenant and speculative space without a tenant signed at the start of construction.

Two primarily build-to-suit projects totaling more than 200,000 square feet each were completed for Carmel-based Telamon Corp. in Whitestown and Brybelly Holdings Inc. in Greenfield. Of those warehouses, Telemon is occupying 101,000 square feet, and Brybelly is taking 165,000 square feet, leaving the remaining space as spec, i.e. vacant and available for lease.

Near Brybelly in Greenfield, a 60,000-square-foot distribution facility was delivered for Foamcraft Inc., which will help the company serve its growing e-commerce clientele.

Nevada-based Shear Property Group in the fourth quarter completed the lone spec building—a 132,000-square-foot distribution center at 998 Gerdt Court east of Interstate 65 and south of East Main Street in Greenwood.

Several additional spec projects are in the works, however, as developers race to take advantage of the record levels of net absorption and low vacancy. Of the 6.3 million square feet of industrial construction under way in the metropolitan area, 5.5 million square feet of the total is for spec projects, Cushman & Wakefield said in its report.

As a result, vacancy likely will increase in 2017, Weishaar said, but not by enough to be of much concern.

“In reality, it’s a very healthy marketplace,” he said. “Geographically, we make sense. That’s not going to change.”

The strength of the local industrial market continues to lure new players to the area. On Jan. 12, suburban Chicago-based Molto Properties LLC announced that it had purchased 47 acres in the AmeriPlex business park on the southwest side and planned to build a 621,000-square-foot spec building there.

The southwest submarket, which includes industrial-heavy Plainfield, is particularly hot. It boasts the largest amount of inventory in the area, roughly 69 million square feet, with a vacancy rate of just 1.5 percent at the end of 2016, according to Cushman & Wakefield.

The low metro-area vacancy for industrial buildings is starting to push rents higher. The average asking rent increased from $3.55 per square foot in 2015 to $3.62 last year.