City's industrial market fared better than most in 2009

January 19, 2010

The Indianapolis industrial real estate market didn’t escape the recession unscathed last year, but the sector outperformed most other cities and took less of a hit than in the last recession, according to 2009 market reports compiled by a pair of commercial real estate brokerages.

Locally based Summit Realty Group and the local office of CB Richard Ellis both issued reports on the Indianapolis industrial and office markets this month.

Summit reported vacancy in the industrial sector increased for the year, from 9.2 percent to 10.6 percent. The company said that, though the rate grew, it compares favorably to the 5-to10-percentage-point increases in most U.S. markets.

CB Richard Ellis pegged industrial vacancy at 9.7 percent, just a point higher than at year-end 2008.

Contributing to the higher vacancy rate were business consolidations caused by the recession, the addition to the market of speculative space—almost all of which was planned and started in 2008, and the completion of build-to-suit projects that caused some large tenants to vacate existing buildings.

CB Richard Ellis noted that occupancy growth for the year of 2.2 million square feet—though less than half the growth in 2008—exceeded predictions for the year. And the growth compared favorably to the 2002 economic downturn, when occupancy in the market fell by nearly 1 million square feet.

Both reports noted that vacancy rates stabilized in the most recent quarters, leading both firms to forecast slow but steady growth in the sector in 2010. Although more than 1.2 million square feet of speculative space was added to the market in 2009, little or no speculative development is expected this year, which should lead to lower vacancy rates.

The office market didn’t fare as well last year, and there’s not much optimism for 2010.

The vacancy rate in the downtown area jumped dramatically, from 13.5 percent at the end of last year to 19.7 percent at year-end 2009, according to Summit’s report. The huge increase was due in part to Safeco Corp. in September vacating 330,000 square feet at its former headquarters, a five-building complex at 500 N. Meridian St.
In spite of a tough year for downtown office space, there was stability at the top of the market. According to CB Richard Ellis, vacancy in Class A buildings was essentially unchanged, finishing the year at 16.6 percent. And large tenants, including Regions Bank, The Indiana Clinic and PricewaterhouseCoopers, signed leases or renewals downtown.

The tale of 2010 could be told by Eli Lilly and Co., which is considering vacating its Faris Campus, near South and Meridian streets. That would dump another 465,000 square feet of office space onto the downtown market.

The suburban office market ended the year with a 23 percent vacancy, the highest vacancy since the first half of 2004, Summit’s report said.

Vacant space available for sublease, caused by companies consolidating, is a major factor in the suburbs, according to both Summit and CB Richard Ellis. The amount of such space on the market increased from 21,000 square feet at the beginning of 2009 to 350,000 square feet by year end, the CB Richard Ellis report said.

The large inventory of space available for sublease will make it tougher for landlords to fill space that isn’t leased, but it bodes well for tenants seeking discounted rental rates.


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