Marcus & Millichap

Indianapolis Industrial Research Report

Indianapolis Metro Area, Second Half 2017

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Tightening Vacancy, Rising Rents Prompt Construction; Investors Active in Indianapolis

Strategic location, sustained employment growth, rising consumer demand propel industrial sector. Indianapolis' central location and vast interstate network make it an important logistics and distribution hub. The state is also actively recruiting manufacturing employers to the region and more than 4,000 manufacturing and transportations jobs were created metrowide last year, underpinning business expansions. Growing tenant demand amid a restrained construction pipeline will tighten vacancy to a more than 10-year low in 2017, driving rents to within 7 percent of the 2010 peak. As a result, more speculative projects are likely to break ground. Southeast Hendricks County is an active area for developers with large projects due for completion this year in Plainfield and Clayton. Access to the airport, major transportation corridors and developable land makes the area attractive to logistics and distribution companies.

Investors react positively to metro's strengthening industrial market. Indianapolis' robust absorption and sizable rent growth are attracting out-of-state investors. Many are seeking higher yields than are available in many larger markets. The increase in competition, however, is driving valuations and moving many local investors to the sidelines. Rising prices and plentiful buyers will motivate some owners to list this year. Single-tenant properties in Marion County are especially desired at cap rates that typically begin in the low-6 percent area for a property with a credit tenant. Quality assets that are marketed will quickly receive multiple offers. With stiff competition for single-tenant buildings, more investors are willing to consider multi-tenant assets. Properties near the airport, along major transit corridors or in large industrial parks are targeted at cap rates that begin in the 8 percent span.

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