The Indianapolis office market started the year with a strong performance, as the leasing of more space in the first quarter led to yet another decline in the city's vacancy rate.
Through March, the city’s direct vacancy rate stood at 14 percent, compared with 14.8 percent at the same time last year, according to statistics from global real estate brokerage Cushman & Wakefield. It was 15.3 percent in the first quarter of 2016.
The brokerage’s current first-quarter report shows the Indianapolis market posted a net gain of 18,257 square feet of leased space (aka "net absorption") through the first three months of 2018, leading to the year-over-year vacancy decline. The Indianapolis office market contains a total of about 31.7 million square feet of space.
Strong employment and increased demand for office space from the financial and professional and business services sectors helped drive down vacancy, Cushman’s report said.
The positive net absorption in the first three months marks the 16th consecutive quarter in which the local office market has posted an overall increase in the amount of leased space over the same quarter the year prior, according to the report.
Downtown, vacancy fell from 17.2 percent to 16.4 percent during the same period, as the submarket in the city's core continues to improve. But a decision from the Indianapolis-area’s largest public company could reverse the momentum, Cushman’s report warned.
Insurance giant Anthem Inc. occupies much of the 213,600-square-foot building at 120 Monument Circle but plans to fold its headquarters into its operations center on Virginia Avenue after deciding not to renew a lease that expires at the end of the year.
Anthem’s decision to vacate the building, which IBJ reported in January, brings to market an amount of space not seen on the Circle since Emmis Communications Corp. completed its nine-story, 120,129-square-foot headquarters in 1998.
In other areas of the city: Vacancy in the North Meridian office corridor fell from 10 percent to 8 percent while dipping only slightly in the nearby Keystone at the Crossing area, from 13.7 percent to 13.4 percent.
Vacancy in the northeast submarket dropped from 15.4 percent to 13.6 percent but rose in the northwest part of the city, from 13 percent to 13.8 percent, the report said.
Also, average asking rent for the Indianapolis area climbed from $19.15 per square foot to $19.53 per square foot. For downtown, the average asking rent increased slightly, from $20.59 per square foot to $20.91. For upscale Class A space downtown, the rate jumped from $22.08 to $22.30.
The local industrial market is off to an impressive start, as well
In the first quarter, the net gain in leased space reached 1.3 million square feet of space—three times the amount in the same period last year and just shy of the record 1.6 million square feet reached in all 2016, according to JLL’s first-quarter industrial report.
While it's too early to predict how the rest of the year will shape up, it's reasonable to expect net absorption could exceed 5 million square feet in 2018, JLL predicted. The Indianapolis market, known as the Crossroads of America and a popular hub for warehousing and distribution tenants, contains about 217.3 million square feet of industrial space.
“With several large deals recently signed and leasing numbers expected to peak later this year, 2018 is shaping up to be one for the books,” the report said.
Total vacancy in the Indianapolis area through March stood at 5.8 percent, down from 6.7 percent at the same time in 2017, according to JLL. It was 7.8 percent in the first quarter of 2016.
Demand for industrial space shows no signs of slowing either. Despite 4 million square feet of speculative construction (i.e., building a facility without a tenant signed) nearing completion, the market is in no immediate danger of being overbuilt, the report said.
Recent industrial deals in the market include a 545,010-square-foot expansion by Geodis Logistics LLC at I-70 West Commerce Park near Clayton, and the arrivals of NTN Bearing Corp. (202,640 square feet) at Perry Industrial Park in Whitestown, and Royal Interpack Midwest (130,841 square feet) at AllPoints at Anson, also in Whitestown.