Retail dominates the Indianapolis real estate market. Over 12 million people , have visited the 780,000 sq. ft. Circle Centre retail/entertainment mall since its opening in downtown Indianapolis nearly a year ago. Circle Centre is currently close to 95% leased, with 89% of the space leased at opening. While a third anchor (in addition to Nordstrom and Parisian) has been discussed, Emmis Broadcasting recently announced plans for a 140,000 sq. ft. headquarters building on the designated Circle location. A smaller pad, on the Illinois Street side of the block, will still be available for future retail development.
The merger of Simon Property Group Inc. and DeBartolo Realty Corp. on Aug. 9 has yet to have the impact on Indianapolis as has Circle Centre. The effects will be important, however, as the Simon-DeBartolo Group will be based in Indianapolis. Besides Circle Centre, Simon-DeBartolo Group now control four other regional malls in Indianapolis: Castleton Square, Greenwood Park, Lafayette Square and Washington Square. Castleton, Washington and Lafayette squares will undergo a $20 million upgrade.
Retail leads the market
Besides the regional level, the retail market is very active. The east-west corridors through the north side of Indianapolis are especially popular with big boxes and category killers. Supermarkets, fighting for market share with the entry of Meijers, are seeking new locations. Rents have increased 10% to 15%, although small-shop space in many centers is still difficult to lease.
One of the largest retail projects scheduled for 1997 is the redevelopment of Keystone Mall in Carmel into Merchants' Square by Linder & Co. The 25 year old, 350,000 sq. ft. mall was anchored by Target, which will move three miles to the Phi north. Merchants' Square will have both a neighborhood and a regional component.
While stories from the retail market would probably win "event of the year" in both 1995 and 1996, downtown Indianapolis, itself, is generating excitement. Michael McKenna, who heads CB Commercial's Indianapolis office, says: "The office market is getting tighter, both suburban and downtown. We've been seeing decreasing vacancy to the point where we are about 17% vacant in the downtown market. There is lots of interest both on the part of retail and office users. People are seeing Circle Centre as an added amenity for quality of life, work life or residential life."
Downtown heats up
Over 106,000 people work downtown, and forecasts predict 131,000 employees by 2000. Apartment occupancy has risen, and small infill multifamily developments completed as employment, Circle Centre and other entertainment venues bring people into downtown.
Major public improvements will be completed downtown in 1996, including landscaping, lighting and sidewalks. The 12,500-seat Victory Field, home to the Triple-A Indianapolis Indians, opened in July in White River State Park downtown. A $20 million expansion of the Downtown Canal into the park and a 450-seat IMAX 3-D theater are to be completed in late 1996.
Hotels are adding to the downtown synergy. A 180-room Hampton Inn will open this fall in the historic Chesapeake Building across from Circle Centre, and an 86room Comfort Inn will be within walking distance of the Centre. A $15 million hotel complex, The Canal Hotel Center, will bring two more hotels along the old Indianapolis Water Co. Canal. A 120-suite Residence Inn and 120-room Courtyard by Marriott will open in spring 1997.
Office market gaining interest
The office market is improving downtown. According to F. C. Tucker Co., vacancy rates for Class-A space were down to 13% in June 1996 from 16% a year ago. Rents are rising and concessions limited. Overall occupancy is hindered by the large vacancies in Class-C buildings. The market should be helped by the state, which is once again leasing office space in privately owned buildings downtown.
There is some interest in reinvestment and rehabilitation downtown. Among the larger projects is the USA Group (a guarantor of student loans) move into 300,000 sq. ft. on the upper floors above the Parisian store in Circle Centre in early 1997. Two North Meridian Building will house 500 employees from the State Board of Health. Lacy Diversified Industries Ltd. recently purchased the Test Building. Its corporate staff will move to the nine-story office tower this fall, increasing the occupancy to 85% from 65%. Recent reinvestment examples include the Fletcher Trust building and the former First Indiana Bank building.
The suburban office market is very tight as vacancies continue to decline. Overall vacancy was 8% in the second quarter 1996 compared to 11% one year ago. Significant changes occurred in the southwest/west submarket where vacancy decreased to 14% from over 17% last year. The Keystone Crossing submarket has the lowest vacancy rate at 4%, while the northeast submarket has the second lowest vacancy with 6%.
As an indication of the strength of the suburban office market, Duke Realty recently completed Two Parkwood, a 93,000 sq. ft. speculative building that was 50% preleased before construction and 100% leased upon completion. Asking rent was approximately $ 17. A speculative building at The Precedent park was leased to Ameritech Wireless. Duke is expected to break ground on Three Parkwood, a 125,000 sq. ft. speculative building, shortly. A two-building, 150,000 sq. ft. office complex is also under way in Fishers.
Over 2 million sq. ft. of office space sold for in excess of $90 million in 1995. Suburban office acquisitions are expected to increase as prices rise and availability declines for industrial space.
Industrial space increasing
Increasing industrial vacancy plus construction of both speculative and build-to-suit space boosted available space by more than 3 million sq. ft. since December 1995. Duke Realty, Opus and Dermody Properties added nearly 1 million sq. ft. of speculative space, while CTI's John Deere property landed almost 1 million sq. ft. of build-to-suit space.
According to F. C. Tucker Co., industrial vacancy increased to nearly 6% in June 1996 from 4% at year-end 1995. The 1.94 million sq. ft. increase is due primarily to several large users vacating space, including Jenn-Air/Maytag, Cummins Engine, Ben Franklin, Formica, Stone Container and the state of Indiana. Demand also started to slacken in 1996 after over 8 million sq. ft. was absorbed in both 1994 and 1995. Brokers do not believe that slowing demand is a concern, however.
In looking at the success of the industrial market, Thomas Peck, an executive at Duke Realty, says, "Indianapolis has benefited from the trend to centralize into large distribution hubs rather than a dozen locations across the U.S. because of its interstate highway system and location within a day's drive of 60% of the U.S. population."
Duke recently completed buildings totaling 600,000 sq. ft. for Thomson Consumer Electronics, 320,000 sq. ft. partially leased by Thomson, and 154,000 sq. ft. for American Airfilter. Currently under development are a 500,000 sq. ft. building for Little Brown & Co., a 97,000 sq. ft. expansion for Daydream Publishing, a 320,000 sq. ft. speculative building, a 152,000 sq. ft. building of which 21% is preleased and a 405.000 sq. ft. building for Vanstar. These projects are either in Parkway 100, the largest business park in Indianapolis and one of the largest in the nation, or in the Lebanon Business Park.
Not only has industrial property been built, but it also has been purchased. Security Capital , a Colorado-based REIT, and Duke Realty Investments, an Indianapolis-based REIT, each added over 4 million sq. ft. to their portfolio between mid-1994 and year-end 1995. Overall sales totaled 8.5 million sq. ft. in 1995 with an aggregate value of nearly $200 million.
Residential activity is chiefly north and west. Developments at the airport continue to draw people to the west in Hendriks County and southwest Indianapolis. Hamilton County, north of Indianapolis, is one of the fastest growing counties in the Midwest.
The apartment market is stable with occupancy remaining at 93% to 94% and rents increasing 3% to 4% a year. The north submarket has the highest occupancy with 96%. Over 1,100 new units were constructed in 1995 and another 2,000 units under way early in 1996. About 50% of the new construction is located in Hamilton County.
Optimism and enthusiasm prevail throughout Indianapolis, especially downtown. Indianapolis is a steady market. Demand continues to be healthy. Indianapolis did not experience, except for a slowing in office leasing and occupancy, the overbuilding that occurred in other regions during the mid- to late-1980s. Its continuing success is attracting the attention of national investors and developers as well as local activity. "They stopped flying over the top of us and now want to know what they can get or do," says David W. Goodrich, president of the Commercial Real Estate Services Division, F. C. Tucker Co. It makes for a interesting marketplace.