Feb 8, 2024 - News

Stutz maintains momentum as Indy office market hangs tough

Aerial view of The Stutz

Aerial view of The Stutz. Photo: Courtesy of SomeraRoad

As the Stutz building continues its run as one of downtown's hottest properties by locking down a pre-pandemic-sized deal, experts say the future of office space in Indianapolis is looking up.

Driving the news: New York-based developer SomeraRoad, which owns the historic auto plant turned trendy mixed-used space, recently inked a deal to bring the headquarters of specialty products manufacturer Calumet to the Stutz.

  • The signing of the 52,000-square-foot lease will see Calumet move 200 employees from the northwest side to downtown Indianapolis.

Why it matters: The Calumet lease is a big Q1 win for the Indianapolis office market after 2023 ended on a fairly positive note.

  • According to commercial brokerage JLL, nearly 300 office leases were signed in 2023 totaling more than 2.2 million square feet, up from 245 deals totaling 2 million square feet the year before. But the average deal size is down by almost 10% year over year.
  • Renewal activity increased nearly 25% compared to 2022 and accounted for half of leases signed last year.

Yes, but: Net absorption — which measures newly occupied offices, minus new vacancies — surpassed -600,000 square feet for the second consecutive year.

  • By the end of 2023, Indianapolis' total vacancy rate was 23.9%.

The big picture: Last year, U.S. office vacancy — the share of office space that is not leased by a tenant, rather than leased office space that's deserted — approached record highs not seen since the savings and loan crisis in the 1980s, Axios' Emily Peck writes.

Between the lines: JLL's senior managing director Matt Waggoner tells Axios that Indy's high negative absorption rate is not a sign of disaster.

  • He explains that commercial real estate is a lagging indicator, meaning that changes made by companies when COVID was at its worst don't show up in our statistics until years later.
  • He added that a big part of those negative absorption numbers are national organizations with a local presence.
  • "Calumet is a great example of a local employer that realizes that they've got the pulse on recruiting and retention in the local market, and they need to have an office space and environment that reflects that and allows them to draw people in," he said.

What's next: Waggoner said more activity is expected from local organizations that understand their office space needs now that they've wrapped their arms around the hybrid work model.

  • "That action or demand is going to be oriented towards the periphery of downtown which I would put the Stutz in, that I would put Bottleworks in, and that I would put the Box Factory Development in," he said.
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