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Local office market continues vacancy struggles

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The Indianapolis office market suffered through a tough 2010, marked by stagnant and high downtown vacancy rates, falling suburban occupancy rates and another year without construction activity.

Those findings were part of a year-end market report released Tuesday morning by Indianapolis-based brokerage Meridian Real Estate LLC.

“Corporate downsizing continues to impact office vacancies … ” the report said. “With unemployment slightly increasing … and productivity still trending positive, demand for office space remains weak. Corporations are still generating solid revenue without adding employees.”

The overall downtown office vacancy rate at the end of 2010 remained almost the same as a year ago, ticking down from 20.4 percent to 20.2 percent, according to the report.  

Downtown’s Class A vacancy rate remains alarmingly high, at 24.5 percent.

“Downtown seems to have halted its downward trend,” the report said. “Still the vacancy remains high and could go higher depending on the pace of corporate downsizing and the amount of state office leases that may not renew.”

In the suburbs, overall offices vacancies soared from 22.7 percent to 25.3 percent during the year. Vacancy rates rose in almost every submarket.

Vacancies skyrocketed in the west/southwest submarket, with the rate shooting from 26.5 percent to 38 percent.

The Keystone submarket vacancy rate increased more than two percentage points, to 27.2 percent, and the North Meridian/Carmel rate rose one percentage point, to 21.8 percent.   

Despite high vacancies, Class A asking rents ticked up slightly, from $20 per square foot to $20.50 downtown and from $19.50 to $19.75 in the suburbs.

For the second year in a row, the entire office market experienced no construction of multi-tenant buildings.

In 2011, Meridian said it expects to see “the markets continuing to stabilize, albeit in a depressed state. Large overall vacancies across the broad market, along with thin deal flow, make for a long road before we will see positive absorption and any growth in rental rates.”

Investment sales should “slowly increase as the spread over treasuries continues to shrink, making borrowing costs attractive,” the report said. “In addition, certain large tenants currently leasing are evaluating whether owning their buildings is a more advantageous structure.”
 

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