Hello and Happy New Year, readers! We are delighted to usher in the new year with our first market update. As we embark on the journey of 2024, let’s delve into the intricate web of trends and opportunities that define the ever-evolving landscape of commercial real estate in Indianapolis.

Industrial Outlook: A Balancing Act

Starting with the industrial sector, Indianapolis has witnessed intriguing shifts over the past year. Despite a 300 basis point increase in vacancy to 7.5% in Q4 2023, the demand for industrial space is moderating. Challenges loom on the horizon as speculative projects contribute to higher vacancy rates, with only 26% of the colossal 11.8 million square feet under construction preleased.

Annual net absorption reached an impressive 8.7 million square feet, aligning with historical trends. However, Hancock, Johnson, and far Boone counties led in leasing, yet Hancock’s 4.1 million square feet net absorption couldn’t fully mitigate the impact of newly delivered vacant properties, resulting in a 30% vacancy rate.

The surge in industrial development, especially in properties exceeding 500,000 square feet, constitutes 75% of recent deliveries. Despite rising vacancy rates, rents have experienced a 9.2% increase, reflecting the market’s historically lower average rents. However, rent growth is showing signs of softening, and with a decline in construction starts since late 2022, the market might find relief by late 2024 as new project completions decrease, potentially stabilizing or tightening the vacancy rate.

Sales Volume: A Rollercoaster Ride

Moving on to sales volume, there’s been a notable 68% decrease year over year, dropping from a historic high of 2.5 billion in 2022 to 814 million in 2023. Although 2023 levels mirror pre-pandemic figures, the outlook for 2024 appears optimistic. With the Federal Reserve announcing downward adjustments in interest rates, a projected 20% to 25% growth in industrial sales volume is anticipated, reaching around $1 billion.

Indianapolis Office Market: Facing Headwinds

Shifting our focus to the office market, Indianapolis confronts challenges with a rising vacancy rate of 9.3%. A continuous decline in demand has led to increased space returns totaling 760,000 square feet in the past year. Tenants reducing space contribute to an 11.4% availability, notably impacting the Meridian corridor and Keystone crossing submarkets.

Despite national weaknesses in the office sector, Indianapolis, with its diverse tenant base in agribusiness, logistics, and life sciences, has shown resilience. However, asking rent growth is softening and is projected to turn negative by mid-2024. Transaction activity has slowed, with only 232 million in assets traded in 2023, down approximately 35% from the 2022 figures of roughly 360 million. Uncertainties and elevated interest rates may hinder significant improvement in investment activity in the near term.

In conclusion, as we navigate the complex currents of the Indianapolis commercial real estate market in 2024, the key lies in adaptability and strategic planning. The downward adjustments in interest rates by the Federal Reserve could be a game-changer, offering a glimmer of hope for a more robust and resilient market in the coming months. Stay tuned for further updates as we continue to decode the intricacies of Indianapolis’ commercial real estate landscape.