Strong local economy driving real estate sectors

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Indianapolis’ strong economy is helping drive the growth of most local real estate sectors to heights that outpace the city's Midwestern counterparts, a panel of commercial real estate experts said Wednesday.

Leaders of the local office of the Chicago-based global real estate services firm DTZ (formerly Cassidy Turley) delivered the optimistic message at the company's annual State of Real Estate outlook.

The city last year ranked 35th in job growth out of roughly 280 metropolitan areas, while lowering its unemployment rate to about 5 percent, DTZ chief economist Kevin Thorpe said.

Ticking through the office, industrial and multifamily sectors, Thorpe described industrial as “on fire” while noting the more than 17 million square feet of space absorbed in the market in recent years.

“You’re one of the few markets that absorbed space during the recession,” Thorpe said. “It’s because you’re in the middle of the country. You have a great advantage there.”

The job growth also is helping drive the huge surge in downtown apartment construction, as millennials enter the rental market. The number of apartment units (4,200) that came on line last year downtown equaled the entire amount built throughout the rest of the metro area.

Another 4,000 units downtown are expected to be ready for occupancy this year. The building boom should last for another five to seven years, Thorpe predicted.

Though the downtown population is growing, the office market so far is failing to keep pace. The vacancy rate stands at an alarming 24 percent, mostly driven by disappointing occupancy in traditional towers, said Jon Owens, a DTZ managing director and office broker.

“But I’m optimistic about downtown,” he said. “It’s undergoing rapid change, a renaissance.”

More than half of the city's office towers were built before 1980 and still sport outdated interior designs that need to come out of the “dark ages,” Owens said.

Building owners are beginning to remodel common areas to help attract tenants, who in turn need more modern workspaces to recruit millennials.

White Plains, N.Y.-based True North Management Group, the owner of the troubled BMO Plaza, has added a trendy-looking tenant lounge. And the new owner of Market Tower, Chicago-based Zeller Realty, is embarking on a multi-million-dollar renovation of the building’s atrium, Owens said.

Just as the office market is changing, the retail sector is, too, shifting to make shopping experiences more experiential, said Jacque Haynes, a DTZ senior vice president and retail broker.

The change is driven by the recovering economy and the influence of millennials and their shopping demands and interests.

It’s occurring at high-end luxury malls where retailers like Tesla, Apple and Microsoft are tenants, Haynes said.

Despite the perception that millennials prefer to shop online, statistics show they actually enjoy visiting malls. That’s driving online retailers such as Amazon to open outlets. The company opened its first ever staffed store in February at Purdue University.

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