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Report paints brighter picture for retail

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After a dismal couple of years in the retail sector, a rosy report from the real estate investment firm Marcus & Millichap says vacancy rates and tenant concessions in Indianapolis are falling while rents and sale prices are poised to rise.

The report predicted retail spending in the market would continue growing, fueled by the addition of 16,000 jobs in the metro area, including 4,000 highly paid positions in the professional and business-service sectors.

That should fuel enough retail leasing activity to pull the vacancy rate down from 12.4 percent at the end of the first quarter to 11.9 percent by the end of the year, Marcus & Millichap said.
 
Asking rents will tick up less than a percent this year, to $14.26 per square foot, but effective rents will grow by 1.6 percent, to $12.13 per square foot. That’s a reflection of landlords granting fewer concessions to tenants. Concessions as a percentage of asking rent are predicted to fall to 14.9 percent this year in what would be the first year-over-year reduction in concessions in almost a decade, the report said.

Recent growth in the retail sector hasn’t yet caused a big bounce in sales of retail properties, Marcus & Millichap said. Buyers are back in the market, attracted by retail sales growth and low interest rates, but a lack of quality listings has suppressed sales.

The report predicts the supply of listings will grow as sellers try to take advantage of renewed interest among buyers.

Jordan Klink, an investment specialist with the local office of Marcus & Millichap, said the rising gas prices that crimped consumer spending after data for the report was finalized shouldn’t dramatically affect the local retail landscape.

Klink said the demand for properties among investors continues to be high in spite of fuel prices, which have trended down in recent weeks.

“Owners are evaluating and believe this is the time to get in,” he said.

Marcus & Millichap recently listed a 10,600-square-foot retail center that is 100 percent leased even though it commenced construction in 2009 during the depths of the recession. The Meijer Shops of Carmel at 1430 W. Carmel Drive is getting interest from regional and national investors because it’s in the strong Carmel submarket, Klink said.

Reports that characterize an entire market are useful to a point, but retail remains very location specific, said Scot Courtney, president of the local office of Lee & Associates.

Carmel and other submarkets, such as Castleton, Clearwater and Keystone, are a good reflection of the ongoing recovery, Courtney said. “If you compare what was happening 24 months ago to today, it’s a different world.”

Courtney agreed that concessions for tenants are beginning to soften. “Incentives are still stronger than they’ve been in a long time. It’s still a tenant’s market, but the market is improving from a landlord’s perspective.”

He said gas prices aren’t affecting the retail real estate market yet, but there is concern. “We’re going to be a lagging indicator on that,” Courtney said, noting that if the fuel price spike is short-lived, it’s less likely to take a bite out of the retail real estate recovery.

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  1. to mention the rest of Molly's experience- she served as Communications Director for the Indianapolis Department of Public Works and also did communications for the state. She's incredibly qualified for this role and has a real love for Indianapolis and Indiana. Best of luck to her!

  2. Shall we not demand the same scrutiny for law schools, med schools, heaven forbid, business schools, etc.? How many law school grads are servers? How many business start ups fail and how many business grads get low paying jobs because there are so few high paying positions available? Why does our legislature continue to demean public schools and give taxpayer dollars to charters and private schools, ($171 million last year), rather than investing in our community schools? We are on a course of disaster regarding our public school attitudes unless we change our thinking in a short time.

  3. I agree with the other reader's comment about the chunky tomato soup. I found myself wanting a breadstick to dip into it. It tasted more like a marinara sauce; I couldn't eat it as a soup. In general, I liked the place... but doubt that I'll frequent it once the novelty wears off.

  4. The Indiana toll road used to have some of the cleanest bathrooms you could find on the road. After the lease they went downhill quickly. While not the grossest you'll see, they hover a bit below average. Am not sure if this is indicative of the entire deal or merely a portion of it. But the goals of anyone taking over the lease will always be at odds. The fewer repairs they make, the more money they earn since they have a virtual monopoly on travel from Cleveland to Chicago. So they only comply to satisfy the rules. It's hard to hand public works over to private enterprise. The incentives are misaligned. In true competition, you'd have multiple roads, each build by different companies motivated to make theirs more attractive. Working to attract customers is very different than working to maximize profit on people who have no choice but to choose your road. Of course, we all know two roads would be even more ridiculous.

  5. The State is in a perfect position. The consortium overpaid for leasing the toll road. Good for the State. The money they paid is being used across the State to upgrade roads and bridges and employ people at at time most of the country is scrambling to fund basic repairs. Good for the State. Indiana taxpayers are no longer subsidizing the toll roads to the tune of millions a year as we had for the last 20 years because the legislature did not have the guts to raise tolls. Good for the State. If the consortium fails, they either find another operator, acceptable to the State, to buy them out or the road gets turned back over to the State and we keep the Billions. Good for the State. Pat Bauer is no longer the Majority or Minority Leader of the House. Good for the State. Anyway you look at this, the State received billions of dollars for an assett the taxpayers were subsidizing, the State does not have to pay to maintain the road for 70 years. I am having trouble seeing the downside.

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