Real estate to hold steady in '08, report says

January 10, 2008

Real estate giant Colliers Turley Martin Tucker expects a 2008 slowdown in new office and industrial construction in Indianapolis as market demand catches up to a rapidly expanding supply. Retail construction likely will continue its quick pace, buoyed by the addition of mega-fitness chains and the local expansion of Dunkin Donuts. But tightening credit markets will continue to limit the number of projects that can find financing.

Those are among the predictions in the annual State of Real Estate report compiled by the local office of St. Louis-based Colliers Turley Martin Tucker. CTMT executives and Gov. Mitch Daniels will discuss the findings at a 4 p.m. event today at the Murat.

The bottom line: Central Indiana's economy continues to outperform most metropolitan areas in surrounding states despite recent events that have added uncertainty to the market. Among those factors are unpredictability of capital markets, the property tax crisis and the election of Mayor Greg Ballard, said Jeff Henry, the managing principal of CTMT and host of today's event.

Henry expects a steady 2008.

"We're not going to see big highs or low lows," he said in an interview. "The biggest question mark is, when are the capital markets going to adjust."

The report points out several trends in the local commercial real estate market. Among them:

- In the industrial category, developers added 7.1 million square feet of space in 2007, the highest total in memory, pushing the vacancy rate from 6.2 percent at the end of 2006 to 8.6 percent currently. Only 2.6 million square feet of new construction is expected in 2008, with about 2 million of that build-to-suit.

- In an office surprise, the downtown submarket outperformed the suburbs in absorption. The central business district boasted occupancy growth of 208,000 square feet by the end of 2007, versus 163,000 square feet in the suburbs.
"The jump mainly is a result of local government taking more space in private office buildings."

But just about all of the city's new Class A office space is being built in the northern suburbs. More than 918,000 square feet is now under construction.

- For retail, big stories in 2007 were the redevelopments of Castleton Square and Greenwood Park malls and the construction of Hamilton Town Center. This year's big stories should include the addition of new locations for fitness giants such as LA Fitness and Lifestyle Family Fitness, along with an emerging coffee showdown. Dunkin Donuts is planning dozens of new stores to compete with Starbucks, and McDonald's is adding baristas to many of its stores for the same reason.

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