A strong leasing year in the Meridian corridor Class A office submarket led Duke Realty Corp. to break ground on a speculative office building, but local experts don't expect other developers to follow Duke's lead anytime soon.
Site work has begun on Nine Parkwood Crossing, the final building in Indianapolis-based Duke's project on 96th Street east of Meridian Street. Completion is set for January 2006. Minnesota-based American Family Insurance will occupy 45,000 square feet of the building, moving its offices from Shadeland Station on the northeast side. That will leave 78 percent of the 204,762-square-foot building available as speculative space.
Nine Parkwood will be the first mostly spec office building in the market since Duke and locally based Lauth Property Group Inc. wrapped up work on buildings at Parkwood Crossing and Intech Park, respectively, in early 2003.
After a year that saw nearly 400,000 square feet of vacant Class A space filled in the Meridian corridor, tenants in the market for large, contiguous spaces were left with few options. That and overall occupancy increases were enough to prime the pump for Duke, said Jennifer Burk, senior vice president of Duke's Indiana office group.
Vacancy across Duke's local portfolio is about 8 percent, Burk said. That compares with 17.4 percent for the entire market, according to statistics from Colliers Turley Martin Tucker.
In the Meridian corridor submarket, which includes Parkwood Crossing, vacancy fell 3.2 percent from year-end 2003, to 15.8 percent.
As a result, only a handful of spaces are left for tenants seeking more than 30,000 square feet on one or adjacent floors of a multitenant building.
When excess corporate real estate is figured in, the options widen, but not by much. In the Meridian corridor, Carmelbased Conseco Inc. has a 105,000-squarefoot building at 550 Congressional Blvd. for sale or lease. About 90,000 square feet in the building is unoccupied. Austin, Texas-based Inland Paperboard & Packaging Inc.'s former building near Michigan and Vincennes roads on the northwest side is also available for lease, offering another 120,000 square feet, said Dan Richardson, first vice president at the local office of CB Richard Ellis.
Even though few large spaces are available and suburban vacancy rates are falling, other developers said they aren't in any hurry to test the market.
"Until we see overall demand increase and absorb existing vacancy, we're not going to move forward on a 100-percent spec building," said Michael Curless, Lauth's executive vice president.
Real estate brokers said they don't expect anyone else to enter the spec fray, either. There's still an abundance of spaces under 20,000 square feet, and there aren't many users of spaces over 30,000 square feet hunting for space, they said.
"Unfortunately, there's not as many of them as any of us would like," said Mike Napariu, vice president of marketing for locally based REI Investments Inc., which owns or manages several buildings in the Meridian corridor.
Some landlords have purposely avoided leasing large blocks of space piecemeal.
At Meridian Mark II, owner Zeller Realty Corp. is holding out for a single tenant to replace accounting firm Katz Sapper & Miller, which left in 2003 for space in Duke's Eight Parkwood.
"We're pretty excited about having that one contiguous block," said Mark Vollbrecht, local senior vice president of Chicago-based Zeller. "Duke is right; there's not a lot of that in this market."
Before American Family settled on Nine Parkwood, the company considered 10 other locations, including four buildto-suit sites, said Michael Cook, vice president in the local office of Chicagobased Equis Corp., which represented American Family in the deal.
"Landlords came after them with proposals I didn't expect to receive," Cook said. "People are still as hungry [for tenants] as they were 12 months ago."