Downtown’s stagnant office market finally looks to be on the mend.
Third-quarter market reports from local office brokerages show downtown’s vacancy falling well below 20 percent for the first time since the Great Recession started in late 2007.
In fact, the downtown submarket recorded its strongest quarter since late 2011 by absorbing about 110,500 square feet of space, which lowered vacancy to 18.8 percent, CBRE statistics show.
Perhaps most encouraging for downtown is that pricier Class A space accounted for much of the improvement. Occupancy in higher-profile buildings such as office towers increased 119,275 square feet while cheaper Class B space suffered a net occupancy decline of 21,736 square feet. Class C occupancy climbed 13,003 square feet.
The increase in net absorption was fueled by expansions from the Scopelitis Garvin Light Hanson & Feary law firm at Market Tower (18,000 square feet) and Riley Children’s Foundation at 30 S. Meridian St. (13,300 square feet). In addition, the Columbus, Ohio-based WP Glimcher real estate firm took 19,600 square feet in Chase Tower.
Improving downtown activity pushed average asking rents up from $18.88 per square foot at mid-year to $19.18 per square foot at the end of September, according to CBRE.
Downtown’s strong third quarter helped the overall Indianapolis office market to its sixth consecutive quarter of positive net absorption and declining vacancy.
CBRE office broker John Vandenbark expects the encouraging trend to continue.
“A continuing increase in occupancy rates coupled with limited supply coming online in 2016 could make the case for an increase in rental rates, assuming demand can continue,” he said in a press release.
Rapidly expanding Salesforce.com could put additional downward pressure on downtown vacancy in the coming years. IBJ reported this month that the cloud computing giant, which already leases 215,000 square feet downtown, is looking for an additional 100,000 to 200,000 square feet.
Overall office vacancy in the Indianapolis area stood at 17.0 percent in the third quarter, down from 17.5 percent in the previous three months, according to CBRE.
A similar report from Jones Lang LaSalle paints an even rosier picture, pegging the office market’s vacancy at 15.7 percent, down from 17.2 percent mid-year.
Through the first nine months, the office market has seen more than 60 deals signed of at least 10,000 square feet, Jones Lang LaSalle said. And nearly half of the deals are from companies that are either expanding or are new to the area.
The office market in part is benefiting from the lack of construction of speculative space.
Two projects expected to be finished next year are locally based PK Partners’ 120,000-square-foot River North at Keystone Crossing and Baltimore-based Atapco Properties’ 61,000-square-foot Lakeside Green Business Center at Guilford Road and Carmel Drive in Carmel.
The Atapco project is the first spec office development built in Carmel since City Center at Penn in 2008.
The vacancy rate at Keystone Crossing is 13.7 percent, unchanged from the previous quarter, and 10.3 percent in Carmel, down from 11.5 percent mid-year, according to CBRE.
Downtown, Loftus Robinson is redeveloping the vacant 12-story J.F. Wild Building at 129 E. Market St.
The developer is investing $7 million, including $5 million to gut the interior, replace the heating and cooling system, and install new exterior lighting, among other improvements.
Loftus Robinson had hoped the building would be ready for occupancy this year. But the extensive renovation and the application process to receive historic tax credits is taking longer than expected, partners Drew Loftus and Kyle Robinson said.
The firm is receiving strong interest from prospective tenants and should begin marketing the building early next year, Loftus said. That’s when Loftus Robinson plans to move its office from Broad Ripple to the building’s top floor.
Constructed in 1923, the 54,000-square-foot building originally housed the J.F. Wild State Bank and was designed by Fermor Spencer Cannon, the architect of Butler University’s Hinkle Fieldhouse. The bank operated just four years and closed in 1927.