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Study: Downtown can sustain huge apartment boom

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An Indianapolis Downtown Inc. study downplays concerns the downtown housing market might become overly saturated with apartment units.

IDI commissioned the survey by the Indiana University Public Policy Institute to get a better grasp on the future of downtown living. The urban core has seen a massive boom in multi-family development as market dynamics have shifted in recent years to support renting instead of buying.

Between 2000 and 2012, nearly 2,000 new rental units were built, according to apartment brokerage Tikijian Associates, bringing the total number downtown to about 4,700. But within the next three years, 3,500 additional units are expected to become available.

If the new units are all occupied, the study estimates that they would increase the downtown population by about 5,300 people. But that won't tip the market to the oversaturation point.

“Assuming current trends continue, there’s way more evidence to suggest downtown can support future demand,” said Drew Klacik, a senior policy analyst at the institute.

One of the strongest indicators: The downtown vacancy rate hit a 12-year low last year of 3.5 percent, while rents per square foot increased from a low of $1.12 to $1.24.

Also, the study compared the city to similar regional markets such as Des Moines, Iowa, and Milwaukee and found that Indianapolis had a particularly low percentage of downtown workers who also lived downtown. That suggested downtown Indianapolis could eventually add as many as 5,000 downtown workers to the rolls of its residents.

National studies are finding fresh demographic populations interested in living in downtowns: millennials, those 30 and younger, and empty-nesters over 50. The study cites a recent Wall Street Journal report that 88 percent of millenials want to live in a downtown area.

The IDI study found that downtown Indianapolis is attracting residents from outside Marion County, and not simply redistributing its own denizens. According to data shared by developers of recently built complexes, 38 percent of their residents had moved from other states and had household annual incomes of $90,807. The median age of these residents was 30.

Another 26 percent of the residents arrived from other Indiana counties and earned annual household incomes of $81,042. The median age of the oldest resident in these households was 27.

Most of those arriving from outside the Hoosier state are emigrating from Midwestern cities such as Chicago, Cincinnati, Dayton, Louisville and Milwaukee, Klacik said. And many have jobs in such well-paying sectors as life sciences, education and business.

Klacik said he polled 10 developers who provided him proprietary information for the study. One of those, TWG Development LLC, has several housing developments in the works downtown, including 800 N. Capitol, the American Building and the neighboring Indianapolis Star building.

“They’re coming from out of the county,” Joe Whitsett of TWG said of the new arrivals. “But one day that won’t be true, if we’re not careful. So I think a slowdown is coming and things will pull back a little.”

Because the downtown housing developers aren’t publicly traded, they’re risking their own wealth to build instead of shareholder money, so they’re likely to be more cautious about over-building, Klacik said.  

For IDI, the analysis helps the not-for-profit with its mission to market downtown, said President Sherry Seiwert, who arrived at IDI in August 2012.

“I thought it was a good time to gather data on downtown,” she said. “It benefits IDI and helps to inform us with the direction of our organization.”

The housing study coincides with another, broader analysis of downtown called Why Downtown Indianapolis Matters, also undertaken by the IU Public Policy Institute.

The eight-page study, for instance, says that 30 percent of all downtown workers have college degrees, while 57 percent have completed some college. Compared to the rest of the state, only 18 percent of Hoosiers have bachelor’s degrees and 44 percent some college education.

Together, the two studies will be part of a Dec. 3 announcement in which IDI is planning to share results of its Velocity campaign.

IDI kicked off Velocity in the spring and held a series of neighborhood roundtable meetings to gather public input about downtown and surrounding neighborhoods. The plan is expected to cover a wide range of topics influencing quality of life, including housing, economic development, transportation, public spaces, and the arts.

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  • Only for the young and old
    I lived downtown for 15 years. It was great when i was single, and then married w/out kids. But once you have kids, downtown isn't really a viable option. The schools drove the decision to leave. Suburban schools are night and day to IPS (and don't counter w/there are charter, magnet, and or private schools). For what i was paying in taxes i shouldn't have to gamble w/a lottery to get into a charter or magnet, or pay even more for private. My taxes in the 'burbs cover excellent schools that are fantastic for my children. Now having lived in the 'burbs for a couple of years while still working downtown, i never want to move back to downtown. Things are so much easier to get to away from downtown. And don't think this is simply a supply and demand thing. These new developments are being built assuming the base rents go up 2-4% year. They can't afford for rents to go down, so don't think that $1000/mo unit is going to be $800 in 3 years. It may be still at $1000/mo, or it could be at $1100+/mo.
  • Not mentioned in article
    My wife and I are of the demographic that would like to move downtown, but, as it is mentioned in the article and below comments, the rents don't quite justify what you will get. There are 2 items that have been in the news often in the last couple months that are among the more important reasons we are not moving downtown yet, those are crime/shootings and homeless people. In the bigger picture, until Indy gets a grasp on those 2 items downtown, I don't think you will see the full potential. And I know I am not the only person who feels this way about downtown.
  • We live Downtown
    We moved from the suburbs to downtown several years ago before moving to Chicago. We now have moved back to Indy because of jobs and we would NOT live anywhere else but downtown. The prices are affordable and the vibe is urban with restaurants, theaters, sports, cultural trail and much more. We hope as downtown continues to grow we can get a Target, Whole Foods and more so that we can live the "true" downtown experience and limit our driving. The surveys speak for themselves, many of the people who live downtown are coming from other cities and most of those cities do not have the vibrant downtown that we have so they are very attracted to downtown Indianapolis. On a side note, We have owned and we choose to rent. We DO NOT want to live in the same place for 50 years, you only live once and we want to be able to explore and be flexible to seeing and doing new adventures.
  • The [new] American dream
    Brian, I get where you're coming from, but not everyone sees ownership of real estate as the ideal. You see "a place to live rent free for the rest of your life", but I (and many of my young peers) see an anchor locking us in place, especially if the market turns and we can't unload the thing. And while I get that you see home ownership as "hedging yourself against any future downturns in the economy," the last six years have shown home ownership to be anything but a hedge. There will always be those who want to own their own home, perhaps even the vast majority. But more and more people just don't see it as necessary to live a healthy, fulfilling, financially-secure life.
  • re: LOL
    Thanks for the explanation. I really appreciate hearing from someone who is vastly more knowledgable than I am. I am pleased to hear that many of the renters are from out of state. Makes perfect sense. I agree, Indy's downtown looks like a bargain compared to other cities. However, we live in one of the few areas of the country where jobs pay well enough and suburb housing is cheap enough -- that, for the costing of renting an apartment for 10 years, a person with a slightly above average income could easily buy the median priced home in Indy and have a place to live rent free for the rest of your life, hedging yourself against any future downturn's in the economy, health issues, loss of employment. The reasons to own a home outright and have ludicrously low month to month costs are many and varied. And, a 1300 - 1500 a month rental apartment ensures that almost no matter what your income, I'll never get there. To me, financial security is my dream. Live slow, die old. I am almost there. I do understand value, though, and that people have different values on the things that matter to them. And, I appreciate your perspective as a leasing agent in a downtown community. I am shocked, however, to say the least, how different my personal values and goals are from others. Thanks again for your valuable perspective.
    • Price vs supply and demand
      Simple economics: there is high demand for downtown living, and (relatively) low supply. That's why the existing apartments rent for so much. More supply on the market will lower prices overall as it moves to meet demand. Maybe not the quickest process, and one that requires more than the current oliogopoly of very few developers, but it will happen. That said, price isn't the only factor anyway. After all, you can buy a dirt cheap house in many Indy neighborhoods, but the high income folks in Carmel aren't moving to the east side. Where you live is not purely based on price.
    • LOL
      Just because YOU either can't afford to live downtown or don't really want to doesn't mean that others don't. Personally, I wouldn't choose to live anywhere in this city OTHER than downtown. It offers easy access to my work and most of the places I choose to spend my time outside of work, as well. Existing downtown communities boast the highest occupancy rates in the city. Recently completed communities are nearly full. Communities under construction are already working off waitlists. And perhaps you aren't so familiar with downtown housing options, but there are plenty of places to choose from even if you AREN'T making $80,000 a year. As a leasing manager of one of the communities downtown, I can assure you that for every person lamenting, as you've suggested, that they'd "love to live downtown, but it just isn't worth it for what they want to charge", there is a person new to this city who can't believe how AFFORDABLE it is for a nice place downtown compared to where they came from. I enjoy being able to walk to Colt's and Pacer's games, to meet my friends or coworkers for dinner down the street after work, to walk down to Mass Ave. and grab a few drinks on a Friday night - all without ever having to get in my car. In fact, there are entire weeks when I have no need to drive anywhere. I'll take downtown Indy any day, compared to most of the surrounding areas. And if I have to pay slightly more to enjoy the urban atmosphere - I'm more than happy to do so.
    • At current prices...
      Downtown will become a retirement community :/
    • What are these people smoking?
      Look, it's easy to ignore complains about pricing and write people off who say things like, "they're just too expensive for what you get" and "I can't justify the prices compared to elsewhere in Indy" as people who just aren't yuppie enough to live downtown. Okay, it's all fine and good to "ignore the cheap seats" as it were. But, in all honesty, many of the folks in these situations are financially savvy young professionals -- the exact demographic the developers want to reach, supposedly. And, many of them are saying, "I'd love to live downtown, but it just isn't worth it for what they want to charge". When thousands of people are saying the same thing, it's shocking that no one is listening. They're all living in a dreamland. Both developers and the 20 somethings. Downtown is good place to live. But, it's not worth it to me.

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