Indy office market maintains amid national spikes
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As national office vacancy rates climb to record highs, the Indy market is attempting to slowly return to pre-COVID levels through a combination of new construction and moderate growth.
Why it matters: Vacancy rates typically rise in economic downturns, so it's outside the normal pattern that they've been going up for the past few years as the economy has remained on solid ground.
The big picture: The pandemic seems to have permanently changed the way many Americans work, and companies don't need as much space as they once did.
By the numbers: Indy's office vacancy rate at the end of the second quarter was 22.3%, up from 20.1% in the fourth quarter of 2019, according to Moody's.
- Nationwide, office vacancy rates reached a record 20.1% in the second quarter — the highest since at least 1979, when Moody's began tracking.
Yes, but: While up 2.2% over the past five years, local rates haven't climbed as sharply as the hardest hit cities like San Francisco (up 12.2%), Austin (11.9%) or Charleston (10.7%).
- Our market also posted moderate occupancy growth this year as we transitioned from winter to spring, per JLL and Cushman & Wakefield.
- Mike Cagna, senior research manager for JLL, says Indy has been maintaining a pattern of moderate gains and losses going back to the fourth quarter of 2021.
Zoom in: The Indy metro is trying to give companies what they want — luxury headquarters-like buildings or trendy spaces with amenities that make leaving the house worthwhile.
- In downtown, spaces like the Stutz building, Bottleworks and the Box Factory Development have fulfilled that desire.
- Indianapolis also has a number of high-profile and high-end multi-use projects under development targeting 2025 and beyond.
What they're saying: "Throughout the remainder of the year the market overall is operating nearer to equilibrium than it has recently," Cagna said. "As a result, occupancy loss this year is trending to be the lowest it has been since the pandemic."
What we're watching: The second quarter saw two significant groundbreakings as work started on HQs for Republic Airways along the North Meridian corridor and Merchants Bank in Carmel Midtown.
- According to Maggie Tillotson, senior research analyst for Cushman & Wakefield, the two projects will add an additional 240,000 square feet to the Northern Indy/Carmel inventory when they are done in late 2025.
- "Altogether there is 348,000 square feet of space currently under construction, the largest pipeline since 2020, as new construction in top-tier locations remains highly desired by tenants," Tillotson said.