New apartment construction in Indy bounces back

The Indianapolis apartment industry is rebounding after the COVID-19 pandemic cut new construction in half.

Driving the news: Roughly 2,761 new apartment units are expected in the Indianapolis metro area this year as developers ramp back up after a pandemic-related drop in 2022.

• That's according to a new report by RentCafe, which analyzed data from real estate intelligence service Yardi Matrix.

Why it matters: High mortgage rates have made home buying less attractive, pushing more people into rentals.

What happened: "If you start working on a project in 2020, or '21, you're finishing construction in '22," said Chase Smith, vice president of market rate development for Indianapolis-based developer TWG.

• "That [2022] dip down from historical levels is very much what I would have anticipated."

Yes, but: This year, the city was primed to bounce back, he said.

• "I think what you're seeing is money and confidence flowing right back into Indianapolis probably a little bit faster and more strongly than a lot of other major metros," he said.

The intrigue: While the U.S. saw an annual decline in rent growth this spring, Indianapolis had one of the fastest year-over-year rent growth rates, per a Realtor.com analysis.

• Smith attributes that to a range of factors including a low cost of living, two nearby Big Ten universities and employers including Eli Lilly, Salesforce and Rolls-Royce.

The big picture: A surge in new apartment supply — 1.2 million units were completed during the pandemic — helped slow rent growth nationwide, but some parts of the country saw more housing being built than others.

Reality check: Around 89% of the units completed from 2020 through 2022 across the country are high-end, per the report, and not the type of affordable apartments many renters want.

• Downtown Indianapolis has seen several high-end projects in recent years, such as The Whit and 360 Market Square, which cater to professionals with hotel-like amenities, including rooftop pools, dog parks and fitness centers that rival expensive health clubs.

Meanwhile, unlike other cities like Nashville, Austin and Phoenix, which have seen major apartment construction by national developers for years, Indianapolis hasn't attracted a real estate market bubble, Smith said.

• "There's never enough of an institutional focus [on the city] to make a bubble," he said. "I feel like Indianapolis is always a step behind a lot of other cities and sometimes that's a good thing."

What's next: Smith expects to see "more of the same" — steady growth for Indy's apartment market — in 2024 and 2025.