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Annual Market ReportIndianapolis, Indiana
2013
2 | We know The State of Real Estate®
January 2013
www.cassidyturley.com | 3
Dear Colleagues,
This annual report marks the beginning of 2013, a year that will be significant not only politically but also economically, as businesses and consumers collectively look to Washington, D.C., to provide the clarity needed to move forward with confidence. Despite slowing growth abroad and lingering public policy uncertainties at home, 2012 was characterized by improving business conditions, offering hope that growth will continue in the year ahead. Although the challenges of the past year hampered growth in the latter half, Indiana’s commercial property markets proved to be remarkably resilient as every segment of commercial real estate demonstrated strengthening fundamentals over the balance of 2012.
I am also happy to say that Cassidy Turley has had another successful year. Our office received accolades as the #1 commercial real estate brokerage and the #1 commercial property management firm as ranked by the Indianapolis Business Journal 2013 Book of Lists. The Indiana Chamber of Commerce named our office as one of the Best Places to Work in the state for the sixth consecutive year.
Cassidy Turley is also enjoying success across the country in our third year as a unified firm. We are attracting top talent and expanding into new markets. Our property management portfolio has grown to 455 million square feet, and our leasing portfolio stands at 400 million square feet. Our strategy has been one of smart growth—aiming to get better, not just bigger.
Our progress would not be possible without the support and loyalty of our clients. For this I thank you, and I hope that our annual report—covering the regional and national economy and its impact on the Indianapolis commercial real estate market—will prove useful for your business. In these challenging economic times, keen insight and clarity is even more critical to your success, and we stand ready to assist and guide you.
Sincerely,
Jeffrey L. Henry, SIOR Regional Managing Principal
2013 Market ReportIndianapolis, Indiana
Economic Overview 4
Industrial Market 10
Office Market 18
Retail Market 26
Capital Markets 30
Land Market 36
Associates 38
Industrial Appendix
Office Appendix
Retail Appendix
CONTENTS
4 | We know The State of Real Estate®
2013 Market Report
ECONOMYAt a glance
Economic Overview
DownturnWeak DemandHigh Vacancy
RecoveryImproving Demand
Falling Vacancy
UpturnStrong DemandTight Vacancy
MatureHistoric Demand,Vacancy, Rents
Downturn
MultifamilyIndustrial
OfficeRetail
IN CRE Fundamentals Slowly Improving
Leading Index for Indiana (LII)
U.S. Economy Forecast(Annual Metrics) 2011 2012 (e) 2013 (f)
GDP 1.8% 1.9% 2.5%
Job Growth (ths.) 1,503 1,732 2,000
Unemployment Rate 9.0% 8.1% 7.9%
CPI 3.1% 2.2% 3.0%
CCI 58 66 79
ISM 55.2 52.5 57.0
e: Estimate; f: Forecast Source: Cassidy Turley Research
Source: Cassidy Turley Research
Source: Indiana Business Research Center
Leading Index for Indiana (LII)
90
92
94
96
98
100
102
104
106
How Do You Cope With Sluggish Growth, High Debt and Uncertainty? Provide Clarity
The recovery continues, but it has
weakened. In the U.S. and other advanced
economies, growth is now too low to make
a substantial dent in unemployment, and
in major emerging markets growth that had
been strong as 2012 opened has abated. For
the most part the challenges are familiar. In
the U.S., EU and Japan, fiscal consolidation
to address high debt-to-GDP ratios and a
weakened financial system are slowing the
economic recovery. While this consolidation
is needed for these economies to get
onto a sustainable fiscal track, there is no
question that it is weighing on demand. This
presents two challenges. First, it requires
fiscal consolidation that will, at a minimum,
cause the ratio to level off in the not-too-
distant future. Second, it has to occur
in a way that will keep these economies
operating at as close to full employment as
possible—a process known as rebalancing.
Needless to say, rebalancing is an often
slow and always arduous task that clouds
the market with economic uncertainty.
Compounding this problem dramatically is
pervasive public policy uncertainty, primarily
from Washington, D.C., that has caused
even the most bullish to recoil and has
caused both businesses and consumers to
collectively shift into “wait and see” mode.
There is no easy way out of this predicament,
but one thing is clear: clarity is critical. A lack
of it will continue to stall both the corporate
and consumer sector drivers of the recovery
and weaken demand for commercial real
estate in the process. Thankfully both the
economy and the property markets are not
where they were just a year ago—underlying
fundamentals for both have strengthened
considerably—but if we are to see any
improvement in 2013, clarity is critical.
The main force supporting growth is
accommodative monetary policy with the
aim of aiding a financial system that still is
not functioning efficiently. In many countries
banks remain weak and their positions
are made worse by a stagnating economy,
causing many borrowers to struggle to obtain
needed financing, thereby diminishing
demand for commercial real estate. Central
banks around the globe continue not only
to maintain low rates but also to experiment
with programs aimed at decreasing rates
in particular markets, at helping particular
categories of borrowers, at helping financial
intermediaries in general and at increasing
the money supply by flooding financial
institutions with capital in an effort to
promote increased lending and liquidity—a
process known as quantitative easing (QE).
In the United States, the hope of the Federal
Reserve is that, by flooding the financial
system with even more credit, banks will
not only have enough to safeguard against
potential losses in Europe and the U.S. but
will also be emboldened to begin lending.
It is worth noting that the U.S. economy
has responded very well to past doses of
quantitative easing. QE1 was launched in
November 2008: equity markets surged,
over the course of the program the Dow
rose from 8,000 to 11,000, job growth
accelerated, investment sales picked up
and spreads tightened. However, it is also
clear that the more times QE is used the
less effective it becomes. QE1 had a big
impact, QE2 had a smaller impact and QE3
looks to be even smaller. In mid-December
the Federal Reserve attempted to provide
clarity and spur the market by extending
bond buying and setting a threshold for
the first time that it will use to signal its
interest rate plans. According to Federal
Reserve Chairman Ben Bernanke, the Fed
January 2013
www.cassidyturley.com | 5
Geography Actual Estimate Forecast2008 2009 2010 2011 2012 2013
World Output 2.8% -0.6% 5.1% 3.8% 3.3% 3.6%
Advanced Economies 0.1% -3.5% 3.0% 1.6% 1.3% 1.5%
United States -0.3% -3.1% 2.4% 1.8% 2.2% 2.1%
Euro Area 0.4% -4.4% 2.0% 1.4% -0.4% 0.2%
Germany 0.8% -5.1% 4.0% 3.1% 0.9% 0.9%
France -0.1% -3.1% 1.7% 1.7% 0.1% 0.4%
Italy -1.2% -5.5% 1.8% 0.4% -2.3% -0.7%
Spain 0.9% -3.7% -0.3% 0.4% -1.5% -1.3%
Japan -1.0% -5.5% 4.5% -0.8% 2.2% 1.2%
Emerging/Developing Economies 6.1% 2.7% 7.4% 6.2% 5.3% 5.6%
China 9.6% 9.2% 10.4% 9.2% 7.8% 8.2%
India 6.9% 5.9% 10.1% 6.8% 4.9% 6.0%
Brazil 5.2% -0.3% 7.5% 2.7% 1.5% 4.0%
Economic Forecast for Advanced and Emerging Economies
Source: International Monetary Fund, World Economic Outlook, October 2012
Overview / MARKET TRACKER
GDP Growth Rate(% Change, SAAR)
Source: U.S. Bureau of Economic Analysis (BEA),Moody’s Analytics
Source: U.S. Bureau of Economic Analysis (BEA),Cassidy Turley Research
U.S. Employment & Labor Force Participation
Labor ForceParticipation Rate
Source: U.S. Bureau of Labor Statistics, Moody’s Analytics
62.0%
62.5%
63.0%
63.5%
64.0%
64.5%
65.0%
65.5%
66.0%
-1000
-800
-600
-400
-200
0
200
400
600
GDP Growth Rate (% Change, SAAR)
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Forecast
Source: U.S. Bureau of Economic Analysis (BEA), Cassidy Turley Research
15-Year Average
Source: National Federation of Independent Businesses (NFIB)
Small Business Hiring: Net % Firms Expecting to Hire
90
93
96
99
102
105
108
111
114
117
-9-6-30369
12151821
Small Business Optimism Index Net % of Small Businesses Expecting to Hire
Source: National Federation of Independent Business (NFIB)
S&P 500 ForecastsYear-End 2013
Source: Cassidy Turley Research
S&P 500 Forecasts, Year End 2013
1350
1400
1450
1500
1550
1600
1650
S&P 500 in last truly healthy yearfor property markets
(year-end 2006)
Small Business Hiring:Net % Firms Expecting to Hire
U.S. Employment and Labor Force Participation
intends to keep short-term interest rates
pinned near zero, as they have been since
December 2008, until the unemployment
rate dips to 6.5 percent or lower or
inflation forecasts rise to 2.5 percent.
It’s not just U.S. policy that will affect the
commercial real estate recovery going
forward. Much of its fate depends on policy
decisions made in Europe. If we have
learned anything over the last two years,
it is that when the euro crisis worsens, the
U.S. recovery slows and vice versa. When
the calendar flipped to 2011, there was
speculation that the EU would not bail out
Portugal, raising the odds that a disorderly
break-up of the eurozone would occur.
During that period, the U.S. economy
slowed to a crawl with GDP of just 0.8
percent in the first quarter of 2011. Then, in
the summer of 2011, there was talk about
Greece being forced to leave the eurozone;
the growth rate in the U.S. slowed to just
over 1 percent. Late in 2011, the European
Central Bank (ECB) unveiled its Long-
Term Refinancing Operation (LTRO) plan
to provide over $1 trillion in cheap, short-
term loans to eurozone partners whose
economies were dragging down the EU as
a whole. Europe enjoyed a brief period of
economic stabilization and the U.S. economy
expanded by 4 percent. But as the LTRO
program faded away in March of 2012,
European sovereign debt yields began to rise
yet again and the U.S. economic recovery
faded yet again. There are other factors
that influenced U.S. economic growth, of
course, but the ongoing saga in Europe
continues to weigh heavily on the minds of
U.S. business leaders and lenders alike.
It’s not by chance that the U.S. economy
reacts to every European market jolt; there
are significant economic and financial ties
between these two massive economies.
Nearly 14 percent of U.S. GDP is attributed
6 | We know The State of Real Estate®
2013 Market ReportEconomic Overview
Economic Forecast:Indiana Statewide Industries
Economic Forecast:Select Indiana Cities, % change 2012–13
Statewide Industry 2013 2014
Mining 5.5% 5.9%
Construction 4.5% 2.1%
Manufacturing (Durable goods) -4.4% -5.0%
Manufacturing (Nondurable goods) 2.5% 2.4%
Retail -0.5% -1.0%
Utilities 4.5% 4.7%
Wholesale 1.1% 0.9%
Transportation -1.5% -2.9%
Health care 4.7% 4.7%
Information services -0.8% -1.3%
Finance, insurance and real estate -1.3% -2.1%
Unemployment rate 7.8% 7.2%
Cities GDP Jobs Income
Indianapolis 2.0% 0.9% 3.0%
Fort Wayne 1.5% 0.9% 3.1%
Evansville 1.2% 1.0% 3.1%
South Bend 0.8% 0.4% 2.8%
Bloomington 1.1% 1.2% 3.4%
Gary 1.3% 0.4% 3.7%
Muncie 0.6% 1.2% 4.2%
Lafayette 1.1% 2.0% 3.3%
Terre Haute 0.6% 0.1% 3.3%
Anderson 0.4% -0.2% 3.0%
Elkhart 0.8% 1.3% 3.5%
Kokomo 0.6% 1.0% 3.5%
Source: Bureau of Economic Analysis and CBER calculations Source: Moody’s Analytics, IUBRC
to exports, and about 20 percent of that
goes to the EU. Thus, if the eurozone
experiences a recessionary retrenchment,
demand for U.S.-made goods and services
will take a severe hit—dropping U.S. GDP
growth anywhere from 0.5 percent to 1
percent. The financial ties are even more
alarming. U.S. banks’ gross exposure to the
entire eurozone is $729 billion, nearly 60
percent of tier 1 capital (i.e., common stock
and cash reserves). In sum, U.S. banks
have little choice but to safeguard against a
scenario where things go terribly wrong in
Europe. From a real estate perspective, it is
also worth recognizing that at this stage in
the cycle, European sovereign debt yields
and CMBS spreads largely move in tandem.
If conditions get riskier in Europe, investors
will flee from riskier real estate assets and
prices will fall for everything other than core
building assets. Recently the European
Central Bank (ECB) sent a strong signal
that it is “willing to do whatever it takes to
preserve the euro.” Equity markets in the
U.S. rallied. Perhaps we are entering into
another period of relative peace in the
eurozone but it is likely to be short-lived.
The eurozone economies have significant
rebalancing to do and that will take years.
That said, the ECB has given the markets
every reason to believe that it will do
whatever it takes to prevent a major collapse
of the euro. Our baseline assumption is
that the eurozone will experience some
mild growth in 2013 (GDP<1%).
In this way, the euro crisis continues to
suppress lending conditions and economic
growth in the U.S. The money multiplier
effect, an important metric to watch,
continues to sit at an all-time low. It
measures the amount of money a bank can
create from increases in money created
by the central bank. Historically, when
the Federal Reserve increases the money
supply by $1, banks would correspondingly
increase lending into the economy by $1
to $3. Currently, for every $1 the Federal
Reserve pumps in, banks are pumping out
just $0.80. That’s very little bang for the
buck. Fortunately, the money multiplier has
started to increase more recently, so lending
is loosening but it needs to keep going.
This is critically important because the U.S.
economy and commercial real estate will
fall far short of potential until this improves,
largely because loans make the commercial
real estate world go ’round. When loans
are flowing, capital markets are quadruple
the volume we are witnessing today.
The good news is that we know investors
once again wish to borrow to buy commercial
real estate. The Fed Senior Loan Survey
shows that 30 percent of all banks—small,
medium and large—are reporting strong
demand for loans to purchase commercial
real estate. That level of reported demand
per debt is actually stronger than what we
saw in the last commercial real estate boom
and slightly lower than the tech boom of the
late 1990s. There is also strong demand for
www.cassidyturley.com | 7
January 2012January 2013
Economic Forecast: Indianapolis Metropolitan Area
Indianapolis Indicator 2013 2014 2015 2016
Gross metro product ($ billions) $81.6 $84.1 $86.8 $89.3
change (year-over-year) 2.0% 3.1% 3.1% 2.9%
Total employment (000) 900.8 920.5 947.8 971.9
change (year-over-year) 0.8% 2.2% 3.0% 2.5%
Unemployment rate 7.6% 6.7% 5.8% 5.3%
Personal income growth 4.1% 6.8% 7.1% 6.0%
Population (000) 1,828.3 1,851.7 1,874.4 1,898.2
Single-family permits 5,908 11,217 13,375 13,147
Multifamily permits 2,103 2,441 2,458 2,311
Existing-home price ($ thousands) $127.6 $132.7 $140.2 $146.2
Mortgage originations ($ millions) 6,241 4,098 4,315 4,718
Net migration (000) 11.7 10.3 9.6 10.7
Source: Moody’s Analytics
Overview / MArkEt trAckEr
Source: Cassidy Turley Research
0
20
40
60
80
100
120
140
160
Consumer Confidence (1985=100, SA)
Source: Cassidy Turley Research
Source: Cassidy Turley Research
United States: CRE Improvement
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
U.S. Office U.S. Industrial U.S. Apartment U.S. Retail
Vaca
ncy
Rat
e
Current, Q4 12 Peak
Source: Cassidy Turley Research
Indiana: CRE Improvement
0%
2%
4%
6%
8%
10%
12%
14%
16%
IN Office IN Industrial IN Apartment IN Retail
Vaca
ncy
Rat
e
Current, Q4 12 Peak
Source: Cassidy Turley Research
Manufacturing: ISM Purchasing Managers’ Index
Source: Institute for Supply Management
United States:crE Improvement
Indiana:crE Improvement
consumer confidence(1985=100, SA)
0
10
20
30
40
50
60
70
Manufacturing: ISM Purchasing Managers’ IndexSource: Institute for Supply Management
Above 50 = Expansion
corporate loans, small business loans and
home mortgages. Demand for debt is not
the problem. We also know banks have $1.8
trillion sitting idle—five times the norm—so
capitalization is not the problem. Banks not
having the clarity needed to feel comfortable
enough to lend is the problem. Why are
banks reluctant to loosen the purse strings?
Basel III, Dodd-Frank, lawsuits related to
the LIBOR scandal, $1.7 trillion in CRE
debt that is set to mature by 2016, the euro
crisis, slowing global growth and uncertainty
surrounding fiscal policy in the U.S. are all
causing banks to safeguard against all of
these things that could still go terribly wrong.
As a result, financial institutions have been
reducing their loan volume for commercial
real estate since 2009, and they want
nothing to do with construction loans in
particular, down 58 percent from their peak.
The financial challenges facing the banking
industry are nothing compared to the fiscal
challenges surrounding the U.S. deficit. In
simplest terms, the deficit is the amount of
money the government must borrow to make
ends meet when revenues are less than
expenses. In the fiscal year that ended in
September, the U.S. was $1.1 trillion short.
If you’re an optimist, that’s better than the
year before. If you’re a pessimist, that’s
historically high. If you’re a realist, that simply
isn’t sustainable. But the political discourse
in our country isn’t framed by optimists
and pessimists; it’s framed by Democrats
and Republicans who both believe they
are realists. The good news is that there is
general consensus on both sides of the aisle
that the federal deficit needs to be reduced
substantially—by $3 to 4 trillion over the
next 10 years—and there is a realization that
changes to tax policy, federal spending and
entitlement restructuring must all play a part.
The bad news is that there is widespread
disagreement on exactly what part each
should play and an unwillingness to confront
these challenges by either political party.
As a result, the U.S. political arena features
8 | We know The State of Real Estate®
2012 Market ReportEconomic Overview
much of the blame for pervasive public
policy uncertainty that has helped foster
the anemic recovery in the first place.
An examination of voting patterns during
the past 40 years by the Congressional
Recorder shows that political parties have
steadily diverged ideologically to the point
that they are further apart now than at any
time since the end of Reconstruction. An
exhaustive examination is thought-provoking
but isn’t necessary to see the damaging
effects. Simply watching the fiscal cliff
drama unfold on television makes clear the
depths of both the political divide and the
inability of policymakers to reach even the
most basic of compromises. This might
provide a bit of theatrical enjoyment if the
stakes weren’t so high and if it wasn’t the
only mechanism by which the country can
plot a course towards much-needed fiscal
sustainability. Under current policies the
ratio of federal debt held by the public over
GDP—the debt-to-GDP ratio—will rise
rapidly over the next decade. Specifically,
federal debt held by the public is expected to
rise from about 73 percent of GDP currently
to about 95 percent by fiscal year 2022.
One of the biggest challenges for the federal
budget is the aging baby boomer generation,
which will raise government spending on
Social Security, Medicare and Medicaid.
Consider that in 2011 the first wave of baby
boomers turned 65, with nearly 32 million
Americans projected to follow suit by 2030.
Since roughly half of an individual’s lifetime
medical expenditures occur after the age
of 65, this group stands to drive substantial
gains in health care demand and spending.
In turn, they will have a tremendous
impact on the management of real estate
assets that enable the optimal delivery
of health care services. New population
projections highlight just how transformative
the aging Hoosier baby boomers will be
on the demographic makeup of Indiana.
The Indianapolis MSA—which comprises
more than one-quarter of the state’s total
population—will see the number of people
aged 65 and older nearly double in the
next 20 years. But Indianapolis is not alone;
four other sizeable Indiana metros will see
increases of more than 80 percent in the
number of their senior citizens. This dramatic
growth isn’t limited to the metros, however;
Indiana’s non-metro areas will see growth in
excess of 50 percent over the same period.
This means we are on the cusp of seeing
a demographic-driven evolution in the
drivers and management of medical
real estate. Health care providers have
been eager to expand into desirable
communities and are increasingly looking
at new types of commercial real estate,
space that has traditionally been occupied
by office and retail tenants. One change
which is already recognizable is the
migration of ancillary medical services,
such as claims services, membership
services, medical devices and supplies
and health services communications,
from their historical hospital campuses
to off-campus commercial space.
Support services moving off-campus
also opens space to accommodate the
co-location of R&D with critical care.
Throughout all of the political theatrics,
the U.S. economy has been stunningly
resilient. Real GDP in the third quarter of
2012 was revised upward to 3.1 percent,
the fastest quarterly growth of the past year.
Help is coming from a housing recovery,
strengthening job market and healthier
household finances that are driving gains
in consumer confidence and spending.
Although the damage from Hurricane
Sandy and an anticipated tightening of
fiscal policy will likely mean growth will
decelerate in the fourth quarter of 2012
and possibly the first quarter of 2013, the
U.S. economy is poised to emerge on much
stronger footing in the second half of 2013
with gains in output and employment.
No single factor is more important for
commercial real estate than employment.
Here again there is strength. Since January
2011 the U.S. economy has created on
average 172,000 jobs per month, which
is right on par with the job growth we
experienced during the real estate boom
years of 2004-2006. Every single major
sector in this economy, other than the
government, is creating jobs. It’s also worth
noting that the Job Opening and Labor
Turnover Survey (JOLTS) data published by
the Bureau of Labor Statistics indicates that
job openings at firms have been consistently
rising since July 2009. Currently there are
3.7 million job openings, meaning that if we
took all the unemployed persons in the U.S.
and provided them one of these jobs, the
unemployment rate would be 5.8 percent.
Of course, the skills mismatch is a great
challenge for public policy makers, making
such a scenario impossible. Nevertheless,
the rise in job openings highlights the fact
that businesses are seeing better demand,
which will ultimately require more people
and commercial space to meet that demand.
Another sign of strength is that both
business and consumer balance sheets
are in much better shape. For businesses,
just four years after the worst shock to
the economy since the Great Depression,
corporate profits are stronger than ever.
In the third quarter, corporate earnings
were $1.7 trillion, up 18.6 percent from
a year ago, according to the U.S. Bureau
of Economic Analysis. Unfortunately,
www.cassidyturley.com | 9
January 2012
Overview / MARKET TRACKER
Source: Fed. Senior Loan Offi cer Survey
% of Banks Reporting Stronger Demand for CRE Loans
-80
-60
-40
-20
0
20
40
60
19
95
Q4
19
96
Q4
19
97
Q4
19
98
Q4
19
99
Q4
20
00
Q4
20
01
Q4
20
02
Q4
20
03
Q4
20
04
Q4
20
05
Q4
20
06
Q4
20
07
Q4
20
08
Q4
20
09
Q4
20
10
Q4
20
11
Q4
20
12
Q4
Source: Fed Senior Loan Officer Survey
Tech boomRE boom
Source: U.S. Board of Governors of the Fed. Reserve System
Source: Federal Reserve Bank of St. Louis
Bank Liquidity Tremendous: Cash Assets, $ billionsSource: U.S. Board of Governors of the Federal Reserve System
$1.7 trillionin November
$0
$400
$800
$1,200
$1,600
$2,000
Lending Muted: Money Multiplier: Ratio of M0 to M1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Rat
io
Source: Federal Reserve Bank of St. Louis
Household Balance Sheets Look Much Better
Source: Cassidy Turley Research
Household Balance Sheets Look Much Better(HH Debt Service Ratio %)
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
14.5
HH Debt Service Ratio %
Bank Liquidity Tremendous:Cash Assets, $ Billions
Lending Muted:Money Multiplier (Ratio of M0 to M1)
% of Banks Reporting Stronger Demand for CRE Loans
record corporate profi ts have come at
the expense of investment and hiring as
economic and public policy uncertainty
have kept businesses cautious and reluctant
to invest; however, if clarity is provided,
corporations are in position to make the
investments in people and equipment to
meet strengthening demand. For consumers
the household debt burden has shrunk
considerably and household balance
sheets are much stronger. Over the last
three years, consumers have either paid
off or refi nanced the bulk of their debt.
The household debt-service ratio—a ratio
of debt payments to disposable income—
looks as strong as ever. At this stage in
the recovery, the U.S. consumer has
either fully deleveraged or is two-thirds of
the way there. Either way it suggests that
consumer spending will start to contribute
more positively to economic growth.
Outlook
There are many reasons to be encouraged
that the recovery will continue and
strengthen. Even in Europe, as diffi cult as
conditions are, progress is being made.
Sovereign debt yields have calmed, the stock
market is improving and the euro currency
is actually appreciating. Many things could
still go wrong, but far more things are still
going right. In the U.S. policymakers must
fi nally agree on a credible approach to the
federal budget that will reduce the long-term
defi cit and put the U.S. on a path towards
fi scal sustainability. Until this is achieved,
businesses will curb their investments in
hiring and capital spending, corporate
strategic planning will be put on hold and the
commercial real estate recovery will continue
to disappoint. If there is one area where
the dampening effect of uncertainty may be
seen, it is corporate investments, or the lack
thereof. Nationwide, business investment in
equipment and software stalled in the third
quarter of 2012 for the fi rst time since early
2009. Amid a backdrop of uncertainty, U.S.
companies are scaling back investment
plans at the fastest pace since the recession,
with half of the nation’s 40 biggest publicly
traded corporate spenders announcing plans
to curtail capital expenditures in 2013. It is
irrational to assume that fi scal policy will be
anything other than a drag on U.S. economic
growth, at least for the next few years, but
if politicians can provide even a modicum
of clarity, the U.S. economy is ready to
take the recovery the rest of the way.
Assuming policymakers can provide a
bit of clarity, the economy is actually in
pretty good shape. Encouraging signs are
forming in many indices, all suggesting that
the U.S. recovery is maturing and getting
stronger. Economic indicators for the fi nal
three months of 2012 looked encouraging.
In November the Conference Board’s
Consumer Confi dence Index rose to its
highest level in fi ve years. Consumers have
never been more confi dent in this recovery
than they are currently. The housing recovery
continues to impress. Home sales are the
highest in fi ve years, and home prices are
rising in 100 out of 132 metros tracked.
Suddenly housing is poised to contribute
1 percent to GDP growth for the next few
years, as it typically does during recovery
periods. Indeed the stage is set for a real
recovery to emerge. Much stronger growth
for 2013 is still possible; real GDP growth of
2.5 percent to 3.0 percent can be achieved,
and 3 percent to 4 percent in 2014 is not
a stretch given the latest trends in the U.S.
economy. Against this backdrop, demand for
all commercial space is poised to improve
in every segment. All we need is clarity.
January 2013
10 | We know The State of Real Estate®
2013 Market ReportIndustrial Market
INDIANAPOLIS INDUSTRIAL MARKETAt a glance
4Q12 4Q11
Inventory SF 240,497,547 238,456,331
Vacant SF 7,992,340 10,303,229
Vacancy Rate 3.3% 4.3%
Occupied SF 232,505,207 228,153,102
Absorption (Qtr) 1,598,736 1,893,113
Absorption (YTD) 4,353,905 6,219,894
Multi-Tenant Vacancy Rate
Multi-Tenant Net Absorption (YTD)Net Absorption (YTD)
0
2,000
4,000
6,000
8,000
2006 2007 2008 2009 2010 2011 2012
Squ
are
Feet
(‘0
00
s)
Vacancy Rate
0%
2%
4%
6%
8%
10%
2005 2006 2007 2008 2009 2010 2011 2012
Historical Average
If You Build It, They Will Come
The industrial sector has demonstrated
tremendous resiliency in the face of slowing
global growth and pervasive public policy
uncertainty both in Europe and in the United
States. Nationally, the second half of 2012
was one of the strongest in this recovery and
reflects the continuation of a robust uptrend
that began in 2011. In fact, the national
industrial sector has now leased up more
space than it shed during the recession—
an important milestone and one that the
Indiana industrial market eclipsed in 2010.
Statewide, markets such as South Bend,
Mishawaka, Evansville, Fort Wayne and In-
dianapolis all continue to see positive growth
and declines in vacancy for multi-tenanted
industrial space. Despite the headwinds of
sluggish growth and continued deleveraging
at home and abroad, the fundamentals of
the industrial sector are surprisingly robust.
Notable projects from around the state and
historically strong demand metrics and
development in Indianapolis are helping to
provide a positive outlook for the industrial
market in 2013.
A slew of projects taking place across the
state offer a clear sign that demand is poised
to spread to secondary markets in the
quarters ahead. In Southeast Indiana trucks
are moving, product is being stocked and
people are being hired at Amazon’s new
one-million-square-foot fulfillment center at
the River Ridge Commerce Center in Jeffer-
sonville, Ind. The impact of this new addition
to the industrial market will not be limited
to River Ridge or Jeffersonville; expect to
see related industries that support Amazon
begin to occupy space across the Southern
Indiana landscape. In Northwest Indiana rail
is being extended at the 800-acre Inland
Logistics Port at Kingsbury that will connect
Kingsbury Industrial Park in LaPorte to a
main CSX rail line. This project promises to
greatly enhance accessibility for the region
and serve as a major draw for distribution
and advanced manufacturing enterprises.
Meanwhile, at home in Central Indiana,
industrial vacancy remains at the lowest
levels seen in decades, and this is spurring
additional development of all stripes.
By any measure, the amount of speculative
development currently underway in India-
napolis is big. With more than 3.2 million
square feet under construction, Indianapolis
is leading the Midwest in the amount of
new product it will bring online in 2013 to
meet eager tenant demand. The sheer size
of development at 3.2 million square feet
stands alone as a big number, but when
considering that 622,000 square feet of it
was already leased, the level of speculative
development occurring in Chicago (1.7 MSF),
Cincinnati (900,000 SF) and Minneapolis
(350,000 SF) and the lack of development
in other peer markets such as St. Louis,
Columbus and Louisville, the level of
development is even more impressive.
Projects currently underway include a
795,000-square-foot speculative build-
ing located in AmeriPlex by Atlanta-based
Industrial Developments International; a
771,000-square-foot bulk warehouse in
GreenParke in Plainfield by Chicago-based
Verus Partners; a 622,000-square-foot
bulk facility on Ronald Reagan Parkway by
ProLogis and locally-based Browning Invest-
ments that was leased prior to completion; a
450,000-square-foot building on Perry Road
in Plainfield by Kansas City-based VanTrust
Real Estate; and a 600,000-square-foot
warehouse, expandable to more than a mil-
lion square feet, in AllPoints at Anson via a
January 2012
www.cassidyturley.com | 11
January 2013
Industrial / MARKET TRACKER
East Submarket:Absorption and Vacancy Change
Downtown Submarket:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
0%
1%
2%
3%
4%
5%
6%
7%
8%
0
100
200
300
400
500
600
700
Thou
sand
s
Net Absoprtion (YTD) Vacancy (%)
East Submarket: Absorption and Vacancy Change
0%
1%
2%
3%
4%
5%
6%
(100)
(50)
0
50
100
150
Thou
sand
s
Net Absoprtion (YTD) Vacancy (%)
Downtown Submarket: Absorption and Vacancy Change
Northeast Submarket:Absorption and Vacancy Change
North Submarket:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
0%
1%
2%
3%
4%
5%
6%
7%
8%
(200)
0
200
400
600
800
1,000
1,200
1,400
Thou
sand
s
Net Absoprtion (YTD) Vacancy (%)
Northeast Submarket: Absorption and Vacancy Change
0%
2%
4%
6%
8%
10%
12%
(500)
(400)
(300)
(200)
(100)
0
100
200
300
400
Thou
sand
s
Net Absoprtion (YTD) Vacancy (%)
North Submarket: Absorption and Vacancy Change
joint venture by Browning Investments and
Duke Realty.
With so much speculative development
underway, the logical question becomes,
“Is there enough demand to absorb it all?”
Yes, definitely. Although vacancy rates will
rise closer to their historical average in the
short term when the space comes online, in
the long run this amount of space is exactly
what the market needs to continue to be
driven by distribution. Because Indianapolis
is the most centrally-located major city in the
country—75 percent of all businesses in the
U.S. and Canadian populations live within a
day-and-a-half truck drive and more inter-
state highways intersect Indianapolis than
any other region—the area has always been
a major player in logistics. The impact on the
industrial CRE market is clear: it is driven by
distribution. Indianapolis has emerged as
one of the most sought-after markets for dis-
tribution centers in the country, and this in
turn is having a tremendous impact on both
the demand we are seeing in the industrial
market and the development of much-need-
ed product to meet that demand. Central
Indiana’s strength rests on the region’s
strength in three key areas: infrastructure,
workforce and an accommodating public
policy for business. Logistics and distribution
firms have already discovered that India-
napolis offers distinct geographic advantages
for supply chain hubs, a highly skilled and
reliable workforce and some of the lowest
business costs in the Midwest, and they are
parlaying their investment in Indianapolis
into bottom-line profits.
This shows no sign of stopping, and demand
metrics confirm that Indianapolis is among
the best-performing industrial markets
in the nation, due in part to having the
space requirements necessary to meet the
needs of a growing logistics and distribu-
tion segment. This in turn is helping the
Indianapolis industrial market outshine
other peer markets—and the nation as a
whole—by posting nine consecutive quar-
ters of occupancy growth. Multi-tenanted
vacancy rates have fallen to a histori-
cally low 3.3 percent, and vacancy rates
among multi-tenant modern bulk facilities
are tracking even lower at 1.7 percent.
The tight market stems in part to a ban-
ner leasing year in 2008, when the market
absorbed over 7 million square feet at the
same time that speculative construction came
to an abrupt halt, and the 2011 leasing
by giant online retailer Amazon of nearly 2
million square feet, thereby depleting the
market of a good portion of available modern
bulk space. Since that time, net absorption
for all product types has averaged 3 mil-
lion square feet a year and overall vacancy
has continued to decline. An additional
beacon of strength is that 2012 was also
a year with bustling build-to-suit activity, a
further indication of corporate confidence
in the underlying market conditions. Some
of the notable corporations moving forward
include SMC Pneumatics, with a build-to-
suit addition of 600,000 square feet in the
Northeast submarket, and Regal Beloit, with
a 376,000-square-foot build-to-suit develop-
ment in the Southwest submarket.
While current levels of development to support
logistics and distribution are spectacular,
something just as important is playing out
in the manufacturing sector, namely the
rebound in Hoosier manufacturing. Since
the recovery began in mid-2009, Indiana
factories have added more than 60,000
workers, workers who need commercial
space to produce goods. In 2012 Central
12 | We know The State of Real Estate®
2013 Market ReportIndustrial Market
NEW LEASES
Company Location Quarter Square Footage
Anderson Merchandisers South 1 704,000
Hartz Pet Products Southwest 4 622,000
Prime Distribution South 1 412,000
Undisclosed Northwest 1 380,000
Regal Beloit Southwest 2 376,000
Ohio Farmers Northwest 1 240,000
Atkins East 1 212,000
Smart Warehousing Southwest 1 190,000
Celadon South 3 158,000
International Paper Northwest 4 144,000
Thermal Structures Southwest 2 141,000
Fagerdala Southwest 1 120,000
AVC Southwest 3 100,000
FacadeTek Northwest 4 90,000
Zenith Freight Northwest 4 90,000
Schenker Northwest 4 86,000
Rolls-Royce Southwest 1 85,000
Fiserv Southwest 1 76,000
Total Square Feet 4,226,000
Largest Signed Industrial Transactions—YTD 2012*All square footage rounded to the nearest thousand, all transactions greater than 50,000 SF
Source: Cassidy Turley Research
Indiana alone saw close to 560,000 square
feet of manufacturing space absorbed and
witnessed the manufacturing vacancy rate
decline by 80 basis points (bps). The impor-
tance of manufacturing isn’t limited to the
property markets; it is also the largest sector
of Indiana’s economy in terms of output,
which last year totaled more than $278
billion. In terms of percentages, manufactur-
ing comprises over 25 percent of the state’s
GDP, a much larger share than any other
sector. In other words, as manufacturing
goes, so goes the Indiana economy, and
manufacturing went well in 2012.
Amid this backdrop the Indianapolis in-
dustrial market completed another strong
year in 2012 and is poised to continue that
trend in 2013. Leasing velocity tracked at
an impressive clip throughout the past year
with more than 4.2 million square feet of
new leasing and 6.3 million square feet of
renewals and expansions. Net absorption
for the fourth quarter registered 1,598,736
square feet, placing net growth for the year
at 4,353,905 square feet. Submarket varia-
tions in year-to-date net absorption included
the Southwest (+1,074,421 SF), South
(+915,664 SF), East (+601,995 SF), West
(+538,040 SF), Northwest (+513,251 SF),
Northeast (+357,927 SF), North (+176,181
SF), Downtown (+115,782 SF) and South-
east (+60,644 SF). As a result, the overall
industrial multi-tenant vacancy rate fell by
a full percentage point over the balance
of 2012, ending the year at 3.3 percent,
markedly lower than the Midwest industrial
average of 9 percent. Variations in submar-
ket vacancy for all product types included
the South (0.9%), Southeast (1.6%), North
(1.8%), West (2.3%), Southwest (3.1%),
Downtown (3.4%), East (4.1%), Northwest
(4.2%) and Northeast (4.8%). Across the
market, product-type variations in vacancy
included transport (0.7%), modern bulk
(1.7%), maintenance (1.8%), manufacturing
(2%), medium distribution (4.4%), tradi-
tional bulk (4.5%), office showroom (7.3%)
and flex (7.6%).
In the Downtown submarket, net absorp-
tion for the fourth quarter registered 60,935
square feet, pushing year-to-date occupancy
growth to 115,782 square feet. Downtown
product types witnessing annual growth were
medium distribution (+87,786 SF), office
showroom (+58,129 SF) and flex (+11,600
SF). Meanwhile, the manufacturing sector,
which grew in the majority of submarkets,
gave back space (-41,733 SF). Downtown
vacancy for all types currently stands at 3.4
percent, down 50 bps from a year prior.
Tracked traditional bulk, maintenance and
transport facilities in the Downtown submar-
ket were fully occupied, with other product
type variations made up of medium distribu-
tion (0.6%), flex (1.4%), office showroom
(3.6%) and manufacturing (5.6%).
In the East, net absorption through Decem-
ber was 601,995 square feet, driven in part
by 81,702 square feet of growth occurring in
the final three months of the year. Flex prod-
www.cassidyturley.com | 13
January 2012
RENEWALS AND EXPANSIONS
Company Location Quarter Square Footage
Hachette Book Group Northwest 4 809,000
Crossroad Centers Southwest 4 601,000
Carrier West 2 442,000
HP Northwest 2 419,000
OHL Southwest 2 413,000
Hachette Book Group Northwest 4 396,000
Jacobson Warehouse Company Southwest 1 334,000
MKM Distribution Northwest 3 312,000
Venture Logistics Southwest 2 299,000
CEVA Logistics Southwest 3 283,000
Walmart Return Service East 2 277,000
Phoenix Material Management South 3 234,000
Yusen Logistics East 3 195,000
GENCO West 2 177,600
Venture Warehouse and Distribution Southwest 2 140,000
Zee Medical Northwest 3 129,000
FedEx Southwest 3 126,000
Keller Crescent Co. Northwest 1 122,000
Cryovac Northwest 2 120,000
Hanzo Logistics Southwest 1 106,000
Würth Service Supply Northwest 2 96,000
Ingersoll Rand Southwest 3 78,000
Stericycle Southwest 2 53,000
Würth Service Supply (expansion) Northwest 2 52,000
Sim-Pac Southwest 2 50,000
Total Square Feet 6,263,600
Largest Signed Industrial Transactions—2012 Renewals and Expansions*All square footage rounded to the nearest thousand, all transactions greater than 50,000 SF
Source: Cassidy Turley Research
January 2013
Industrial / MARKET TRACKER
Southeast Submarket:Absorption and Vacancy Change
Northwest Submarket:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
0%
1%
1%
2%
2%
3%
3%
4%
4%
5%
(100)
(50)
0
50
100
150
200
250
300
Thou
sand
s
Net Absoprtion (YTD) Vacancy (%)
Southeast Submarket: Absorption and Vacancy Change
0%1%2%3%4%5%6%7%8%9%10%
(500)
0
500
1,000
1,500
2,000
2,500
Thou
sand
s
Net Absoprtion (YTD) Vacancy (%)
Northwest Submarket: Absorption and Vacancy Change
South Submarket:Absorption and Vacancy Change
Southwest Submarket:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
0%
5%
10%
15%
20%
25%
0100200300400500600700800900
1,000
Thou
sand
s
Net Absoprtion (YTD) Vacancy (%)
South Submarket: Absorption and Vacancy Change
0%
2%
4%
6%
8%
10%
12%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Thou
sand
s
Net Absoprtion (YTD) Vacancy (%)
Southwest Submarket: Absorption and Vacancy Change
uct in the East continued to be troubled, sur-
rendering 33,530 square feet; however, all
other product types posted varying shades
of growth, including modern bulk (+211,500
SF), traditional bulk (+159,755 SF), medium
distribution (+138,152 SF), manufacturing
(+73,502 SF) and office showroom
(+52,616 SF). The result was that year-over-
year vacancy declined by 1.3 percentage
points to register at 4.1 percent. Tracked
multi-tenanted maintenance, transport and
modern bulk facilities were completely occu-
pied at year-end, with manufacturing (2%),
medium distribution (4.7%), office show-
14 | We know The State of Real Estate®
2013 Market ReportIndustrial Market
Market Mover: GreenParke I in Plainfield, Indiana, a 770,640-square-foot speculative development undertaken by Verus Partners & USAA Real Estate Company, is one of several industrial projects currently underway in metro Indianapolis that will result in the addition of more than 3.2 million square feet of new warehouse product to meet tenant demand.
room (6%), traditional bulk (7.1%) and flex
(15.8%) properties offering space for lease.
Among the notable leasing in the East during
2012 were the 211,500-square-foot lease
signed by Atkins and the 195,000-square-
foot renewal inked by Yusen Logistics.
Northeast net absorption for the fourth quar-
ter tallied 132,914 square feet, which helped
push annual occupancy gains to 357,927
square feet. Traditional bulk was a noticeable
outlier, surrendering 91,612 square feet,
but other product types such as medium
distribution (+177,097 SF), office showroom
(+144,115 SF), manufacturing (+53,472
SF), flex (+42,855 SF) and modern bulk
(+32,0000 SF) produced gains. The North-
east submarket vacancy rate for all product
types currently stands at 4.8 percent, down
120 bps from the rate in effect at the close
of 2011. Meanwhile, variations in individual
vacancy rates for those product types which
were not fully leased include traditional bulk
(4.5%), office showroom (5.8%), medium
distribution (7.3%) and flex (11.6%).
Quarterly absorption in the North submar-
ket for the final three months was 67,115
square feet, placing net growth for the year
at 176,181 square feet. Segments seeing
year-end growth were medium distribution
(+158,706 SF), flex (+34,554 SF) and man-
ufacturing (+12,000 SF), while traditional
bulk was flat (+194 SF) and office showroom
experienced slight declines (-29,273 SF).
Correspondingly, the overall North submar-
ket vacancy rate registered 1.8 percent, with
variations by product tracking well below the
market as multi-tenanted traditional bulk
and manufacturing options were leased and
medium distribution (0.6%), flex (1.1%)
and office showroom (5.7%) fared favorably
compared to other submarkets.
In the Northwest submarket, net absorption
for the fourth quarter of 2012 registered
380,178 square feet, elevating year-to-date net
absorption to 513,251 square feet. Variations
in annual net absorption included modern
bulk (+356,600 SF), office showroom
(+125,212 SF), flex (+85,298 SF), manufac-
turing (+32,835 SF) and medium distribu-
tion (+18,680 SF), offset by traditional bulk
(-105,374 SF). Currently vacancy in the sub-
market stands at 4.2 percent, with variations
by product type including manufacturing,
maintenance and transport (0%), modern
bulk (3.1%), medium distribution (3.6%), flex
(4.8%), traditional bulk (5.5%) and office
showroom (9.4%). Among the notable new
www.cassidyturley.com | 15
January 2012January 2013
Industrial / MARKET TRACKER
Office/Showroom Submarket:Absorption and Vacancy Change
West Submarket:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
0%
2%
4%
6%
8%
10%
12%
(400)(300)(200)(100)
0100200300400500600700
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Office/Showroom: Absorption and Vacancy Change
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
(400)(300)(200)(100)
0100200300400500600
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
West Submarket: Absorption and Vacancy Change
Medium Distribution Submarket:Absorption and Vacancy Change
Traditional Bulk Submarket:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
(200)
0
200
400
600
800
1,000
1,200
1,400
1,600
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Medium Distribution: Absorption and Vacancy Change
0%1%2%3%4%5%6%7%8%9%10%
(1,500)
(1,000)
(500)
0
500
1,000
1,500
Thou
sand
s
Absorption (YTD) Vacancy (%)
Traditional Bulk: Absorption and Vacancy Change
leasing in the Northwest were deals signed by
International Paper (144,000 SF), Facade-
Tek (90,000 SF), Zenith Freight (90,000
SF) and Schenker (86,000 SF). Additionally,
2012 saw several notable renewals with
Hachette Book Group (809,000 SF), HP
(419,000 SF), MKM Distribution (312,000
SF), Zee Medical (129,000 SF), Cryovac
(120,000 SF) and Würth Service Supply
(96,000 SF) all active in the submarket.
The Southeast followed a rocky growth tra-
jectory that ended with 60,644 square feet
positively absorbed through December. After
see-sawing for much of the year, 38,605
square feet of fourth-quarter growth helped
end the year on a positive note. Nearly all of
the growth for both the fourth quarter and the
year was the result of leasing activity for
medium distribution product. It alone
comprised 82,359 square feet of annual
growth, which was offset by declines in
manufacturing (-4,335 SF), office showroom
(-7,273 SF) and flex (-10,106 SF) product.
The overall vacancy rate rose slightly by 10
bps from a year earlier, although it currently
registers at a very low 1.6 percent. Segments
seeing the greatest movement in vacancy
rates were office showroom (ending the year
at 2.8%), medium distribution (ending the
year at 4.6%) and flex (ending the year at
10.7%).
In the South submarket, net absorption
for the fourth quarter of 2012 registered
352,710 square feet, placing net growth
for the year at 915,664 square feet. South
variations in year-to-date net absorption
by product type included modern bulk
(+627,475 SF), manufacturing (+231,560
SF), medium distribution (+60,000 SF), flex
(20,509 SF) and office showroom (-23,880
SF). The overall South submarket vacancy
rate currently stands at 0.9 percent, down
690 bps from a year prior. Differences in
vacancy by product type include fully oc-
cupied traditional bulk, modern bulk and
transport facilities, manufacturing (0.7%),
medium distribution (1.1%), flex (6.2%) and
office showroom (9%). Among the notable
new leasing that occurred in 2012 were
deals by Anderson Merchandisers (704,000
SF), Prime Distribution (412,000 SF) and
Celadon (158,000 SF). Notable renewal ac-
tivity included Phoenix Material Management
(234,000 SF).
The epicenter of logistics and distribution,
the Southwest, once again set the pace for
the market with annual occupancy gains
of 1,074,421 square feet. Fourth-quarter
gains of 442,392 square feet helped raise
the final tally driven by leasing in modern
bulk (+541,443 SF), medium distribution
(+413,814 SF), traditional bulk (+211,508
SF), office showroom (+31,975 SF), trans-
port (+8,475 SF), maintenance (+7,500 SF),
flex (-14,566) and manufacturing (-125,728
SF). As a result, the submarket vacancy rate
fell to 3.1 percent, with differences by prod-
uct type consisting of traditional bulk (1%),
transport (1.3%), modern bulk (1.7%),
manufacturing (2.5%), maintenance (4.3%),
medium distribution (6.8%), flex (9.7%) and
office showroom (14%). Corporations which
helped drive these gains included Regal
Beloit (376,000 SF), Smart Warehousing
(190,000 SF), Thermal Structures (141,000
SF), Fagerdala (120,000 SF), AVC (100,000
SF), Rolls-Royce (85,000 SF) and Fiserv
(76,000 SF). Additionally, a sizable amount
of renewal activity was led by Crossroads
Centers (601,000 SF), OHL (413,000 SF),
Jacobson Warehouse Company (334,000
SF), Venture (140,000 SF), FedEx (126,000
SF), Hanzo Logistics (106,000 SF), Steri-
16 | We know The State of Real Estate®
2013 Market ReportIndustrial Market
Louisville, Ky.
Columbus
Chicago Elkhart
Kokomo
Lafayette
Michigan
City
Cincinnati,
Ohio
Evansville
Fort Wayne
SouthBend
Anderson
Indianapolis
Bloomington
Muncie
TerreHaute
Louisville, Ky.
Columbus
Chicago Elkhart
Kokomo
Lafayette
Michigan
City
Cincinnati,
Ohio
Evansville
Fort Wayne
SouthBend
Anderson
Indianapolis
Bloomington
Muncie
TerreHaute
Manufacturing Employment Forecast for Indiana Metro Areas
cycle (53,000 SF) and Sim-Pac (50,000 SF).
In the West submarket, net absorption for
the fourth quarter of 2012 registered 42,185
square feet, placing net growth for the year
at 538,040 square feet. West variations
in year-to-date net absorption by product
type included manufacturing (+325,189
SF), traditional bulk (+176,588 SF), office
showroom (+19,812 SF), transport (+12,096
SF) and medium distribution (+4,335 SF).
Correspondingly, the vacancy rate fell by 260
bps over the balance of the year, ending De-
cember at 2.3 percent, with rates among the
product types including modern bulk, main-
tenance and transport (0%), manufacturing
(1.9%), medium distribution (2.7%), office
showroom (4.8%), flex (5%) and traditional
bulk (10.7%). High-profile renewals taking
place during 2012 in the West submarket
included leases signed by Carrier (442,000
SF) and GENCO (178,000 SF).
Outlook
On the upside, housing and the auto industry
appear poised to continue to power stronger
demand for the industrial sector. The National
Association of Realtors announced that as
2012 came to a close the Pending Home
Sales Index increased to its highest level
since April 2010 (106.4). This marked the
third straight month of gains and is another
sign that the housing market recovery is real
and that homebuilding activity will continue
to increase. Residential building materials
account for 12 percent of Hoosier warehouse
inventory, so a rebound in homebuilding is a
very welcome development. Separately, the
Institute for Supply Management-Chicago
business barometer increased to 51.6 in
December from 50.4 in November, the
second straight month of growth, indicating a
rebound in new industrial orders. In addi-
tion, the latest figures on auto sales appear
quite healthy. U.S. auto sales are expected to
end 2012 strongly, increasing 14 percent in
December on top of an impressive November
tally. With annual sales finishing on a strong
note, total sales for the year are expected to
ring in at 14.5 million, suggesting that 2013
will be one step closer to a stable growth rate
for autos with volume above 15 million units.
On the downside, the International Monetary
Fund recently cut its forecast for world growth
as Europe, Japan and the U.S. continue
to cope with high debt and difficult rebal-
ancing, while at the same time emerging
markets continue to be confronted with
sluggish growth. Moreover, it is evident
that business growth is being restricted by
political uncertainty, causing many users of
Metropolitan AreaQ3–Q42012
Q1–Q22013
AnnualAverage
Indiana 1.60% 0.50% 1.00%
Anderson 1.10% 0.32% 0.70%
Bloomington 2.32% 0.64% 1.48%
Chicago–Joliet–Naperville 0.49% 0.14% 0.32%
Cincinnati–Middletown 2.17% 0.63% 1.40%
Columbus 1.20% 0.35% 0.78%
Elkhart–Goshen 0.42% 0.12% 0.27%
Evansville 2.49% 0.72% 1.60%
Fort Wayne 0.41% 0.12% 0.26%
Indianapolis–Carmel 0.13% 0.04% 0.08%
Kokomo 0.81% 0.24% 0.52%
Lafayette 1.95% 0.57% 1.26%
Louisville–Jefferson County 2.55% 0.74% 1.64%
Michigan City–LaPorte 3.14% 0.91% 2.03%
Muncie 3.02% 0.88% 1.95%
South Bend–Mishawaka 0.75% 0.22% 0.48%
Terre Haute 1.96% 0.57% 1.27%
Source: 2012 Manufacturing + Logistics Indiana Report, Center for Business and Economic Research (CBER)
www.cassidyturley.com | 17
January 2013
Industrial / MARKET TRACKER
Flex:Absorption and Vacancy Change
Modern Bulk:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
0%
2%
4%
6%
8%
10%
12%
14%
(200)
(100)
0
100
200
300
400
500
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Flex: Absorption and Vacancy Change
0%2%4%6%8%10%12%14%16%18%20%
0
1,000
2,000
3,000
4,000
5,000
6,000
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Modern Bulk: Absorption and Vacancy Change
Manufacturing:Absorption and Vacancy Change
Average Asking Rates:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
0%
1%
1%
2%
2%
3%
3%
4%
4%
5%
(800)
(600)
(400)
(200)
0
200
400
600
800
1,000
Thou
sand
s
Net Absoprtion (YTD) Vacancy (%)
Manufacturing: Absorption and Vacancy Change
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
All Product Types Warehouse Flex
Average Asking Rates by Product Type
industrial space to collectively shift into “wait
and see” mode. With so much riding on
critical policy decisions and with leaders in
Washington, D.C. seemingly unable to agree
upon anything, fear and uncertainty have
slowed the wheels of production. In many
markets across the country there was a no-
ticeable uptrend in short-term leases signed
in the industrial sector during the third and
fourth quarters—a clear sign that businesses
across the U.S. may elect to simply stay the
course for the moment until they receive
greater clarity on public policy.
Policy aside, it is clear that fundamentals
in the Indiana industrial sector are getting
much stronger. The clear lack of new supply
in secondary Hoosier markets is helping to
erode vacancy. In many parts of the state
where vacancy remains stubbornly high,
development is on par with levels seen in
the early 1990s, nearly 65 percent below the
peak. Meanwhile, the construction of new
product in Central Indiana is helping the
market rebalance to meet the need for larger
blocks of contiguous space here. Assuming
no major policy missteps, expect net de-
mand for statewide industrial space to range
between 7.5 and 8.0 million square feet in
2013, which will drop vacancy rates another
60 bps from where they currently stand.
Supply-demand fundamentals indicate the
overall industrial sector is on the cusp of
entering a period of sustained rent growth,
which we expect to occur within the next
three to six months.
The Indianapolis industrial market has dem-
onstrated tremendous resiliency in the face
of a slowing global economy. In the midst of
turmoil, the industrial sector managed to ab-
sorb a historically healthy amount of space.
The key engines driving growth continue to
be technology, housing, auto and distribu-
tion centers related to internet sales. Indeed,
most of the strongest-performing markets
in the nation are propelled by at least one
of these economic engines; Indianapolis is
being powered by all of them. The underlying
fundamentals in the Indianapolis market
remain strong, the industrial climate as a
whole is strengthening, and new product is
being provided to a diverse tenant mix eager to
receive it, providing promise that 2013 will be
another profitable year for the Indianapolis
industrial market.
ISM Index & Indiana Manufacturing Employment
Indiana ManufacturingEmployment (Thousands, SA)
420
440
460
480
500
520
540
560
30
35
40
45
50
55
60
65
ISM
EXP
AND
S
ISM
CO
NTR
ACTSM
anuf
actu
ring
Ind
ex (
ISM
)
Source: Institute for Supply Managemenet, BEA, Cassidy Turley Research
ISM Index & Indiana Manufacturing Employment
18 | We know The State of Real Estate®
2013 Market Report
INDIANAPOLIS OFFICE MARKETAt a glance
Office Market
Source: Cassidy Turley Research
Fiscal Drag Slows Growth As Clarity
Becomes Critical for Outlook
Through the first half of 2012 the U.S. office
market exhibited an impressive 21.5 million
square feet of growth, thereby eclipsing the
total amount of growth witnessed during the
entire year of 2010 (19.6 MSF). Meanwhile,
the Central Indiana multi-tenant office
market experienced its best consecutive
six-month period of occupancy gains since
the recession with more than 300,000
square feet absorbed through midyear.
Unfortunately, both the U.S. and Indianapolis
office sectors shifted into low gear over the
latter half of 2012 as businesses became
increasingly uneasy amid a climate rife
with economic uncertainty and political
brinksmanship. Vacancy rates—which had
generally been trending downward since
2011—fell flat and so too did office rents.
Unlike the first half of the year when the
majority of U.S. markets and Indiana
counties reported steady gains in occupancy,
the latter half of 2012 revealed a general
softening of demand. Of the 80 U.S. metros
tracked by Cassidy Turley, 54 percent
reported either negligible gains or negative
absorption over the second half of the
year. Closer to home, markets such as Fort
Wayne, Evansville and Indianapolis posted
positive absorption, but office markets such
as South Bend, Jeffersonville and New
Albany, which were flat, were more the norm.
In fact, statewide office growth in Indiana
declined in the third quarter by 65 percent
from the start of 2012, and although Hoosier
markets rebounded a bit in the fourth, the
pace of statewide office growth was off
12 percent as the year came to a close.
This was disappointing but hardly
surprising. After starting the year strong,
the economy clearly lost a substantial
amount of steam as the year unfolded.
Certainly some of the pullback can be
linked to a slowing global economy. The
International Monetary Fund recently cut
its forecast for world GDP growth to 3.3
percent, down from the 4 percent it was
previously predicting. This drawback was
evident in declining exports to Europe (a
major Indiana trading partner) and China,
Indianapolis Vacancy and Absorption Trends
0%
5%
10%
15%
20%
25%
(300)
(200)
(100)
0
100
200
300
400
Thou
sand
s
Net Absorption Vacancy (%)
Indianapolis Vacancy and Absorption Trends
4Q12 4Q11
Vacancy 19.7% 20.4%
CBD 19.1% 18.7%
Suburban 20.1% 21.3%
Absorption (Qtr.) -19,938 94,000
CBD -13,907 -49,000
Suburban -6,031 143,000
Absorption (YTD) 203,785 20,000
CBD -43,472 -224,000
Suburban 247,257 244,000
Multi-Tenant Vacancy Rate
Multi-Tenant Net Absorption (YTD)Multi -Tenant Net Absorption (YTD)
-425
-300
-175
-50
75
200
325
450
2006 2007 2008 2009 2010 2011 2012
Squ
are
Feet
('0
00
s)
Multi-Tenant Vacancy Rate
14%
16%
18%
20%
22%
2006 2007 2008 2009 2010 2011 2012
Historical Average
January 2013
www.cassidyturley.com | 19
Office / MARKET TRACKER
Multi-Tenant Office Overall Market:Absorption and Vacancy Change
Multi-Tenant Office Suburban:Absorption and Vacancy Change
Multi-Tenant Office Market CBD:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
Source: Cassidy Turley Research
off 4 percent and 5.5 percent respectively
from levels registered earlier in the year.
But the primary culprit for diminished
demand was the uncertainty surrounding
the U.S. elections and the looming fiscal
cliff. It is not unusual for the economy and
property markets to pause during an election
season. What was particularly unusual about
the 2012 election was the wildly different
scenarios that could occur based on who
was elected and the immediacy of key
issues. With so much riding on critical policy
decisions regarding sequestration, taxes,
the deficit, healthcare reform and financial
regulatory reform, Hoosier businesses
collectively shifted into “wait and see” mode.
The clarity provided by the election was
more than offset by the immediacy and
lack of transparency surrounding the
self-imposed fiscal cliff crisis. Two key
components defined the fiscal cliff and
gave both businesses and consumers
reason to pause: spending cuts and tax
increases. According to the nonpartisan
Congressional Budget Office, the one-two
punch of tax hikes and automatic cuts (i.e.,
sequestration) would drain $543 billion out
of the U.S. economy in 2013. Tax increases
account for about two-thirds of the fiscal
drag and the sequestration cuts make up
the bulk of the rest. If the U.S. had taken
a dive off the fiscal cliff, the immediate
result would have been increasing taxes
for nearly everyone that would be evident
in workers’ very first paycheck in January
2013. Consumer spending would slow
immediately. Thereafter, effects snowball:
spending slows, business profits decline,
job growth stalls, confidence plummets,
and consumer spending falls even further—
creating an undesirable feedback loop.
The impact of sequestration cuts would
also take effect immediately. Discretionary
spending would be reduced by 9 percent
across the board. Thus, federal agencies
and government contractors would begin
cutting staff immediately and furloughing
employees in order to work within the new
parameters of a smaller budget. The net
result of all of this is that real GDP would be
2.9 percent lower than it would otherwise
be if current policies were extended. The
U.S. economy has been growing only
at an average annual rate of 2 percent
throughout this recovery (2009-2012).
Thus, the estimated 2.9 percent fiscal drag
on growth would, in all probability, sink the
U.S. economy back into recession in 2013.
The drop in economic output would result in
800,000 net job losses by the end of 2013.
This isn’t to suggest that somehow the
sky is falling; underlying fundamentals are
actually dramatically improved. It is to make
clear three key points for the Indianapolis
office market: first, although the fiscal
cliff may be avoided (whether averted in
the first instance in 2012 or retroactively
addressed when the new Congress
convenes in January 2013), the fiscal drag
on the economy and property markets most
certainly has not been avoided; second,
clarity on public policy is absolutely critical
to provide Indiana firms the confidence to
move forward with more robust hiring and
leasing; and third, spending by the federal
government, which plays an important
role in the national and local economy,
will diminish in 2013 in an effort to bring
spending in line with revenue regardless of
any fiscal cliff compromise. The first two
points are relatively straightforward and
have been evident over the last six months,
having reached a particularly fevered pitch
since the November elections. The third,
the importance of federal spending and the
potential ill effects of drawbacks on the U.S.
and Indianapolis economy and property
15%
16%
17%
18%
19%
20%
21%
(400)
(300)
(200)
(100)
0
100
200
300
400
500
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office Overall Market: Absorption and Vacancy Change
0%
5%
10%
15%
20%
25%
(300)
(200)
(100)
0
100
200
300
400
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office Market Suburban: Absorption and Vacancy Change
0%
5%
10%
15%
20%
25%
(100)
(50)
0
50
100
150
200
250
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office Market CBD: Absorption and Vacancy Change
Multi-Tenant Office Class A:Absorption and Vacancy Change
Source: Cassidy Turley Research
0%
5%
10%
15%
20%
25%
(200)(150)(100)(50)
050
100150200250300350
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office Class A: Absorption and Vacancy Change
20 | We know The State of Real Estate®
2013 Market ReportOffice Market
markets, warrants a bit more discussion.
The U.S. Federal Government, for all its
controversy and drama, plays a critical
role in the larger economy. In 2012 gross
consumption and investment by the
government sector totaled $2.49 trillion, the
equivalent of 18 percent of real GDP. The
Federal Government accounts for nearly
8 percent of that total, while state and
local governments account for 10 percent.
For context, $2.49 trillion is larger than
the entire GDP of most countries in the
world except for China, Japan, Germany
and France. Its sheer size means that the
Federal Government has a major impact
on commercial real estate markets across
the country, including Indianapolis. The
Federal Government employs 2.8 million
civilian workers in the U.S., with over
16,000 of them located in Indianapolis.
Federal agencies lease 167 million square
feet of privately owned office space across
the nation, with 923,000 square feet of
that space located in Indianapolis.
However, the more significant impact
comes from commercial real estate’s link
to government contractors. More than one
out of every six dollars of federal spending
goes to government contractors, many of
whom utilize office space. In fiscal year
2012, nearly $450 billion was allocated
to contractors in support of the Federal
Government’s strategic goals and objectives.
Government contractors are major tenants
in many commercial real estate markets,
occupying more than 208 million square feet
in the United States. That is nearly seven
times the size of the total office inventory
in Indianapolis. Under the sequestration
scenario, government expenditures for
contractors would be reduced by 9 percent
in 2013. The contracting world would be
turned on its head, resulting in massive
layoffs. Assuming demand for office
space by such government contractors
drops by a proportionate amount to the
sequestration cuts, then potentially 18.7
million square feet will be rendered empty
across the U.S. This does not include the
other 44 percent of smaller government
contractors whose demand for space
would also shrink due to the cuts. It is
difficult to pinpoint the exact impact on
Indianapolis, but a conservative estimate
would be the loss of at least 95,000 square
feet of growth and asking rate declines of
1.0-1.5 percent. That is just to start: the
feedback loop referenced earlier would
certainly compound the problem, thereby
driving absorption further into negative
territory and dropping asking rates lower.
It is evident that Indianapolis would not
be immune from the effects of proposed
tax hikes and sequestration cuts, and
businesses are well aware of this fact.
Both Indianapolis, where federal spending
accounts for 16 percent of gross metro
product, and the state of Indiana as a whole
would be negatively impacted by proposed
sequestration. The aggregate economy, of
which Indianapolis is the primary driver,
could expect to see employment fall 1.2
percent and personal income shrink 1.3
percent more than it would otherwise.
The resulting drag on the Indianapolis
economy would mute commercial real
estate demand, with the office segment
being hit particularly hard. Based on our
scenario analysis, the Indianapolis region
would see at least 100,000 square feet
Year Inventory (SF)
New Supply (SF)
Net Absorption (SF)
Occupancy Rate (%)
Occupancy (SF)
Vacancy Rate (%)
Vacancy (SF)
2001 11,289,000 355,000 11,000 81.5% 9,200,000 18.5% 2,105,000
2002 11,289,000 0 117,000 82.5% 9,313,000 17.5% 1,983,000
2003 11,305,000 16,000 193,000 84.2% 9,512,000 15.8% 1,783,000
2004 11,366,000 62,000 128,000 84.9% 9,650,000 15.1% 1,717,000
2005 11,306,000 (60,000) 18,000 85.5% 9,666,000 14.5% 1,638,000
2006 11,370,000 64,000 (84,000) 84.3% 9,584,000 15.7% 1,786,000
2007 11,427,000 147,000 208,000 84.9% 9,702,000 15.1% 1,725,000
2008 11,905,000 478,000 203,000 83.2% 9,905,000 16.8% 1,999,000
2009 11,905,000 0 (86,000) 82.5% 9,819,000 17.5% 2,086,000
2010 11,909,000 4,000 59,000 82.9% 9,878,000 17.1% 2,031,000
2011 11,909,000 0 (224,000) 81.1% 9,654,000 18.9% 2,255,000
2012 11,430,000 0 (43,000) 80.9% 9,245,000 19.1% 2,185,000
Source: Cassidy Turley Research
Central Business District
www.cassidyturley.com | 21
January 2013
of space returned to the market, thereby
causing vacancy rates to rise 120 bps to
20.6 percent. This would effectively erase
the vacancy rate improvements experienced
thus far in the recovery and would be
particularly burdensome for the metro’s
Central Business District. Should a deal be
reached by early 2013, Indianapolis is quite
well positioned and should see continued
growth in both employment and demand
for office space. The takeaway is not that
the sky is falling; the takeaway is that when
businesses are confronted with existing
U.S. law that tells them the sky will fall if
Congress and the President fail to act, not
because of weak underlying fundamentals
but because of public policy designed to
produce just such an effect, they pause.
Fiscal cliff drama and uncertainty aside,
companies have been slower to expand
than they have in previous recoveries. In
all, employers have added just 36.7 million
square feet since they began expanding
their office space again in 2011. That is
well shy of the 141 million square feet of
office space businesses shed between
2008 and 2010. This makes debate and
compromise on policies to address the U.S.
federal deficit without harming the fragile
economic recovery all the more difficult.
Discussions, both public and private, on the
best compromise towards fiscal sustainability
have dragged on for weeks; they may last
months. The most likely scenario is that the
short-term budget deal reached in early
January will be the basis for a longer-term
budget deal that will be settled at a future
date. It is also worth noting that the new
Congress that takes office in early January
can change policy retroactively. Indeed,
the longer we go without a long-term deal,
the weaker the economy will become,
creating an even greater sense of urgency
to scale back the cuts and tax hikes.
The stalemate cannot go on forever. At
some point policymakers must finally
agree on a credible approach to the federal
budget that will reduce the long-term
deficit and put the U.S. back on a path
towards fiscal sustainability in the longer
term. Until this is achieved, businesses will
curb their investments in growth (such as
hiring and increasing capital spending),
corporate strategic planning will be put
on hold, and the commercial real estate
recovery will continue to disappoint.
Against this backdrop it isn’t surprising that
vacancy in the Indianapolis multi-tenant
office market remained relatively unchanged
over the last half of 2012 at 19.7 percent;
the positive is that this rate is 70 bps below
the rate in effect a year prior. The Central
Business District (19.1%) continued to
track lower relative to vacancy than the
Suburban market (20.1%), but that gap is
tightening. Submarket variations in vacancy
included Keystone (15.6%), Fishers (16%),
Midtown (17.6%), North/Carmel (18.6%),
East (18.8%), Downtown (19.2%), South
(21%), Northeast (24.3%) and West (36.4%).
Total vacant space at the end of the fourth
quarter totaled 6.1 million square feet. This
was comprised of 2.2 million square feet of
vacant space in the Central Business District
and 3.9 million square feet of vacant space
in the Suburban market. Analysis by class
of space for the entire market demonstrates
Class A vacancy remained unchanged over
the last half of 2012 at 19.6 percent, Class B
vacancy rates declined slightly by 10 bps to
20.1 percent, and Class C vacancy ticked up
by 90 bps, ending the year at 18.9 percent.
The Central Business District’s Class A
vacancy rate dipped slightly during the
fourth quarter to 21.2 percent after having
climbed to 21.6 percent during the first
three quarters of 2012. Meanwhile the
Office / MARKET TRACKER
Multi-Tenant Office Class C:Absorption and Vacancy Change
Multi-Tenant Office Class B:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
17%
18%
18%
19%
19%
20%
(80)(70)(60)(50)(40)(30)(20)(10)
01020
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office Class C: Absorption and Vacancy Change
16%
17%
18%
19%
20%
21%
(200)(150)(100)(50)
050
100150200250300
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office Class B: Absorption and Vacancy Change
Multi-Tenant Office Downtown:Absorption and Vacancy Change
Multi-Tenant Office Midtown:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
0%
5%
10%
15%
20%
25%
(80)
(60)
(40)
(20)
0
20
40
60
80
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office Downtown: Absorption and Vacancy Change
0%
5%
10%
15%
20%
25%
(100)
(50)
0
50
100
150
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office Midtown: Absorption and Vacancy Change
22 | We know The State of Real Estate®
2013 Market ReportOffice Market
Suburban Class A vacancy rate ended
the year lower at 18.6 percent, more than
two percentage points lower than a year
earlier. Although still elevated, Class A
vacancy in the Suburbs is now tracking at
its lowest level since exiting the recession.
Among the submarkets, Class A vacancy
rates varied dramatically, including West
(50.6%), Northeast (32.6%), Midtown
(23.4%), Downtown (21.1%), North/Carmel
(17.9%), Northwest (16.1%), Keystone
(15.8%), South (7.3%) and Fishers (7.2%).
Meanwhile, overall Class B space in
Indianapolis also saw vacancy rates decline
slightly during the final three months of
the year, ending 2012 at 20.1 percent.
This was the result of 240,000 square
feet of occupancy growth occurring over
the first half of 2012 that was offset by
96,000 square feet of negative absorption
in the latter half. Within the Central
Business District, Class B vacancy ticked
up in the fourth quarter but remains 2.1
percentage points lower than the year
prior. In the Suburban market Class B
vacancy remains stuck above 20 percent
but has trended down since the end of
2011. Class B submarket variations in
vacancy rates included West (36.7%),
South (27.6%), Fishers (24%), Northwest
(24%), Northeast (22.2%), North/Carmel
(20.8%), East (17.3%), Downtown (15.8%),
Keystone (15.3%) and Midtown (8.4%).
The amount of sublease space available in
the Indianapolis market declined to 183,000
square feet at the end of December, with
176,000 square feet listed as vacant.
The majority of vacant sublease space
is located in the Suburban market, but
there are several full-floor and multi-floor
sublease options in the Central Business
District which will garner interest for tenants
seeking 75,000 to 125,000 square feet.
A positive harbinger for the health of the
existing tenant mix may be found in the
fact that both available sublease space and
vacant sublease space have declined for six
consecutive quarters and are now tracking
at the lowest rate since the recession.
A negative, but not surprising, harbinger
is that the Indianapolis multi-tenant office
market retrenched a bit during the fourth
quarter, experiencing 19,938 square feet
of negative absorption driven primarily by
occupancy loss in the Central Business
District. Despite what was essentially a
flat quarter, total net absorption for the
year registered at 203,785 square feet,
marking the second consecutive year that
net absorption finished in positive territory.
At year’s end the Suburban market posted
247,257 square feet of growth and the
Central Business District gave back 43,472
square feet. Submarket variations in year-end
net absorption included Keystone (+179,961
SF), North/Carmel (+151,921 SF), Northeast
(+44,441 SF), South (+42,077 SF), Midtown
(+25,415 SF), East (+1,917 SF), Fishers
(-6,693 SF), West (-62,893 SF), Downtown
(-68,887 SF) and Northwest (-103,474 SF).
Class A space drove occupancy gains in the
Indianapolis market in 2012, accounting
for 66 percent of the total net absorption.
This same trend is playing out in markets
across the United States, where Class
A office space has accounted for 75
percent of the net absorption since the
beginning of 2011. This stark dichotomy
between Class A and other assets mirrors
the pattern of the economic recovery.
Year Inventory (SF)
New Supply (SF)
Net Absorption (SF)
Occupancy Rate (%)
Occupancy (SF)
Vacancy Rate (%)
Vacancy (SF)
2001 16,519,000 919,000 716,000 84.0% 13,876,000 16.0% 2,688,000
2002 16,958,000 439,000 (66,000) 81.2% 13,770,000 18.8% 3,184,000
2003 17,516,000 575,000 136,000 79.3% 13,890,000 20.7% 3,620,000
2004 17,950,000 434,000 691,000 81.3% 14,593,000 18.7% 3,363,000
2005 18,217,000 267,000 314,000 81.8% 14,902,000 18.2% 3,316,000
2006 18,563,000 346,000 594,000 83.2% 15,254,000 16.8% 3,085,000
2007 18,779,000 544,000 192,000 81.8% 15,358,000 18.2% 3,421,000
2008 19,635,000 855,000 306,000 79.8% 15,664,000 20.2% 3,971,000
2009 19,797,000 162,000 (258,000) 77.8% 15,406,000 22.2% 4,391,000
2010 19,830,000 34,000 (1,000) 77.7% 15,404,000 22.3% 4,426,000
2011 19,801,000 109,000 245,000 78.8% 15,605,000 21.2% 4,195,000
2012 19,559,000 81,000 247,000 79.9% 15,626,000 20.1% 3,933,000
Source: Cassidy Turley Research
Suburban Market
www.cassidyturley.com | 23
January 2013
The Great Recession put 282,000 U.S.
firms out of business, and the survivors
are opting to lease higher-quality space in
what has largely been a tenant’s market
where leasing rates have been appealing.
Although this flight to quality is all part of
the recovery process, it is not representative
of a healthy commercial real estate market.
A healthy market is one that has enough
growth for demand to extend to lower-quality
product. In 2006, the last truly healthy
year for the property markets, net demand
for U.S. office space was nearly evenly
split between Class A and Class B space.
Although growth dynamics in Indianapolis
are not evenly split (Class A at 66%; Class
B at 33%; Class C at 1%), the balance
is much closer to the distribution seen
during a robust, healthy property market.
Turning to rents, it is clear that rental rates
are posting year-over-year improvements,
but it is also clear the pace of improvement
has been painfully slow. In the Indianapolis
market the average quoted asking rental
rate for available office space in all classes
was $16.03 per square foot per year at
the end of the fourth quarter of 2012.
This represented a negligible change from
midyear when rents were $16.02 per square
foot. The average quoted rate within Class A
was $17.99 at the end of the fourth quarter,
while the Class B rate stood at $15.65 and
the Class C rate at $13.13. At midyear, the
Class A rate was $17.89 per square foot,
the Class B rate was $15.69 and the Class
C rate was $13.19. As the year drew to a
close, the average quoted asking rental
rate in the Central Business District was
$17.14, while the average in the Suburban
market was $15.69. At midyear, quoted
rates were $17.29 in the Central Business
District and $15.61 in the Suburban market.
On the development front, 2012 saw the
first completely speculative commercial real
estate office development in the Indianapolis
area since 2008 with the groundbreaking
of a new 80,699-square-foot, multi-tenant
office space at 8335 Keystone Crossing.
The Keystone submarket has consistently
outperformed other submarkets, and
growth in white-collar jobs, albeit slower
than we might wish, is helping to backfill
underutilized space generated during the
recession and nudging such development
activity forward. The three-story Class A
office space will house 75,000 leasable
square feet and offer new tenant amenities
that will be desirable in a market where
such amenities have become increasingly
important to those assessing space options.
Office / MARKET TRACKER
Multi-Tenant Office North/Carmel:Absorption and Vacancy Change
Multi-Tenant Office Fishers:Absorption and Vacancy Change
Multi-Tenant Office Keystone:Absorption and Vacancy Change
Multi-Tenant Office Northeast:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
Source: Cassidy Turley Research
Source: Cassidy Turley Research
0%
5%
10%
15%
20%
25%
(200)
(150)
(100)
(50)
0
50
100
150
200
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office North/Carmel: Absorption and Vacancy Change
0%
5%
10%
15%
20%
25%
(20)
(10)
0
10
20
30
40
50
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office Fishers: Absorption and Vacancy Change
0%
5%
10%
15%
20%
25%
30%
(250)(200)(150)(100)(50)
050
100150200250
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office Keystone: Absorption and Vacancy Change
0%
5%
10%
15%
20%
25%
30%
(80)
(60)
(40)
(20)
0
20
40
60
Thou
sand
s
Absorption (YTD) Vacancy (%)
Multi-Tenant Office Northeast: Absorption and Vacancy ChangeBuyer Location Size (SF)Ascension Health Ministry Service Center Northwest 144,000
True North Management North/Carmel 240,000
BPG Properties Northwest 97,000
Citimark Keystone 80,000
Steak ’n Shake of Indianapolis Downtown 63,000
Sycamore Springs Partners Northeast 42,000
Select Medical Northeast 38,000
RCS Holdings Northwest 23,000
The Corydon Group Downtown 17,000
Total Square Feet 744,000
2012 Notable Office Sale TransactionsAll square footage rounded to the nearest thousand. All transactions greater than 12,000 SF.
24 | We know The State of Real Estate®
2013 Market ReportOffice Market
Outlook
In the near term, growth will continue to
be restricted by political uncertainty. The
odds are very much stacked against the
economy posting anything other than subpar
growth and disappointing job creation
for the early part of 2013. Until clarity
on public policy is provided, businesses
will remain reluctant to launch capital
spending projects. Even with corporate
profit margins rising to all-time highs, fixed
investment continues to move at its slowest
pace in more than a year as companies
continue to hold off on investment in
equipment, software, structures and—most
importantly—people. Until the fog is lifted,
expect little hiring and an elevated vacancy
rate. Assuming political uncertainty abates,
professional and business service payrolls
in Indianapolis should catch a second
wind by the third quarter of 2013, with the
metro area completing its jobs recovery
by mid-2014, in line with the nation.
The outlook is murky for the latter half
of 2013 and is largely dependent upon
policymakers’ ability to form consensus
in handling the deficit without sinking the
recovery. While lawmakers are working
through these issues, growth will resemble
what we have seen for the last six to
twelve months—slow GDP growth and
some employment growth but well below
potential. Assuming lawmakers can work
it all out with a fair amount of urgency,
the fundamentals in the economy actually
look reasonably healthy. Real GDP will
accelerate in the second half of 2013,
averaging better than 2.5% and even more
so in 2014 to 3.5%. If the recovery follows
this script, then office vacancy rates will
tighten in 2013 and will finally resemble
pre-recession levels by mid-2014.
Market Trend: 2012 saw the first completely speculative multi-tenant office development in the Indianapolis area since 2008 as Sourwine Real Estate Services broke ground on an all-new, 80,699 gross square feet, multi-tenant office space at 8335 Keystone Crossing. The three-story Class A office space will house 75,000 leasable square feet when it comes online in 2013.
www.cassidyturley.com | 25
January 2012
Name Location Size (SF)JP Morgan Downtown 204,000
Freedom Mortgage Fishers 75,000
USDA Northwest 56,000
Travelers Insurance North/Carmel 55,000
Bell Techlogix North/Carmel 54,000
City Securities Downtown 52,000
Republic Airways Northeast 46,000
U.S. Attorney's Office Downtown 44,000
WebMD Keystone 37,000
Ogletree Deakins Nash Smoak & Stewart Downtown 36,000
Verizon Wireless North/Carmel 36,000
Carrington Mortgage Services Northeast 35,000
Ricoh Company Northwest 32,000
Belden, Inc. North/Carmel 31,000
Indiana Court of Appeals Downtown 28,000
Stanley Security Solutions Fishers 26,000
Eli Lilly Credit Union Downtown 26,000
Southern Wine & Spirits of Indiana Keystone 25,000
First Internet Bank Keystone 25,000
GSA Midtown 25,000
Liberty Mutual North/Carmel 24,000
DuCharme, McMillen & Associates Northeast 22,000
FinishMaster Downtown 22,000
ExactTarget Downtown 22,000
Goodwill Education Initiatives East 22,000
Guggenheim Life & Annuity Company North/Carmel 21,000
State Farm Insurance Keystone 20,000
Orbit Medical Northeast 20,000
Indiana Institute of Technology Northwest 20,000
Briljent Northeast 19,000
Indiana Railroad Keystone 19,000
Shepherd Insurance North/Carmel 19,000
T2 Systems Keystone 18,000
Angie’s List Downtown 17,000
ARCADIS U.S. Downtown 17,000
Principal Financial Group Northwest 17,000
GE Capital Real Estate Downtown 17,000
Virtual Marketing Strategies North/Carmel 16,000
Indiana Economic Development Corporation Downtown 15,000
The RND Group Northeast 14,000
Wild Birds Unlimited North/Carmel 13,000
CPI Northeast 13,000
Appirio Downtown 13,000
SXC Health Solutions Downtown 12,000
Quintiles Downtown 12,000
Little Star Center North/Carmel 12,000
Wells Fargo Bank Midtown 12,000
Theoris Keystone 12,000
Assurant Employee Benefits Keystone 12,000
Semio Northwest 12,000
Total Square Feet 1,452,000
Office / MARKET TRACKER
Multi-Tenant Office East:Absorption and Vacancy Change
Multi-Tenant Office West:Absorption and Vacancy Change
Multi-Tenant Office South:Absorption and Vacancy Change
Multi-Tenant Office Northwest:Absorption and Vacancy Change
Source: Cassidy Turley Research
Source: Cassidy Turley Research
Source: Cassidy Turley Research
Source: Cassidy Turley Research
0%
5%
10%
15%
20%
25%
30%
(30)(25)(20)(15)(10)(5)05
101520
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office East: Absorption and Vacancy Change
0%
5%
10%
15%
20%
25%
30%
35%
40%
(80)
(60)
(40)
(20)
0
20
40
60
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office West: Absorption and Vacancy Change
0%
5%
10%
15%
20%
25%
30%
(20)
(10)
0
10
20
30
40
50
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office South: Absorption and Vacancy Change
0%
5%
10%
15%
20%
25%
(150)
(100)
(50)
0
50
100
150
200
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Multi-Tenant Office Northwest: Absorption and Vacancy Change
2012 Notable Office Lease TransactionsAll square footage rounded to the nearest thousand. All transactions greater than 12,000 SF
January 2013
26 | We know The State of Real Estate®
2013 Market Report
INDIANAPOLIS RETAIL MARKETAt a glance
Retail Market
Name Trade Area
Bagger Dave’s Legendary Burger Tavern Michigan Road
Brewstone Beer Company Keystone at the Crossing
Cheddar's Casual Café Avon
DiBella’s Multiple Areas
Drake’s Keystone at the Crossing
Elevation Burger Keystone at the Crossing
First Watch Multiple Areas
Flat Top Grill Hamilton Town Center
Freshii Keystone at the Crossing
Jack in the Box Multiple Areas
Matt the Miller’s Tavern Carmel
Menchie’s Frozen Yogurt Hamilton Town Center
Ocean Prime Keystone at the Crossing
Pancheros Mexican Grill Keystone at the Crossing
Piada Italian Street Food Carmel
Pinkberry Keystone at the Crossing
Punch Burger Downtown
Ralston’s DraftHouse Downtown
Toppers Pizza Carmel
Source: Cassidy Turley Research
Vacancy Rate (All Types)
0%
2%
4%
6%
8%
10%
2007 2008 2009 2010 2011 2012
Historical Average
Net Absorption (All Types) (YTD)
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2006 2007 2008 2009 2010 2011 2012
Squ
are
Feet
('0
00
s)
Net Absorption (Retail)
4Q12 4Q11Vacancy
All Retail Types 7.1% 7.5%
Neighborhood Centers 11.5% 12.0%
Community Centers 10.9% 10.9%
Power Centers 6.7% 6.5%
Strip Centers 10.4% 13.1%
Malls 7.4% 7.3%
Net Absorption (Qtr.)
All Retail Types 336,079 314,874
Neighborhood Centers 46,682 52,617
Community Centers -5,443 177,651
Power Centers 6,971 30,679
Strip Centers 56,460 -4,140
Malls 5,202 26,315
2012 Notable New Restaurant Activity
Vacancy Rate (Retail)
Source: Cassidy Turley Research
Source: Cassidy Turley Research
Retail Shows Reason for Cautious Optimism
Much like other segments of the property
markets, the retail recovery followed a
bumpy road in 2012. A confident start to
the year, spurred in part by unseasonably
warm weather, gave way to a pullback
in consumer spending over the summer
months and the slow return thereafter.
While this seemed to stymie the national
retail sector, keeping vacancy rates flat
at 10.8 percent, the Indianapolis retail
market continued to show improvement by
registering vacancy declines of 30 bps and
posting its best growth of the year in the final
quarter. In fact, vacancy rates for all types
of Indianapolis retail continue to track lower
than the national average at 7.0 percent.
In the fourth quarter Indianapolis registered
336,079 square feet of quarterly net
absorption for all retail types. This came
on the heels of a third quarter that saw
188,476 square feet of growth. Although
these numbers remain below the growth
routinely witnessed in a vibrant commercial
real estate market, they mark the best
six-month period of net occupancy gains
seen in all retail types in over two years and
helped net absorption for the year climb to
508,380 square feet. Product type variations
in quarterly net absorption included strip
centers (+56,460 SF), neighborhood centers
(+46,682 SF), power centers (+6,971
SF), malls (+5,202 SF) and community
centers (-5,443 SF). Meanwhile, vacancy
January 2013
www.cassidyturley.com | 27
Name Trade Area
Earth Fare Hamilton Town Center
Five Below Multiple Areas
Free People Keystone at the Crossing
Gordmans Avon
Kate Spade Keystone at the Crossing
Lucy Keystone at the Crossing
Microsoft Keystone at the Crossing
Salon Lofts Multiple Areas
Sperry Top-Sider Keystone at the Crossing
West Elm Keystone at the Crossing
Source: Cassidy Turley Research
2012 Notable New Retailers Activity
January 2013
Retail / MARKET TRACKER
Source: Cassidy Turley Research
Source: Cassidy Turley Research
Source: Cassidy Turley Research
Keystone Centers:Absorption and Vacancy
Source: Cassidy Turley Research
0%
1%
2%
3%
4%
5%
6%
7%
8%
(60)
(40)
(20)
0
20
40
60
80
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Keystone Centers: Absorption and Vacancy
0%
2%
4%
6%
8%
10%
12%
(80)
(60)
(40)
(20)
0
20
40
60
80
100
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Castleton Centers: Absorption and Vacancy
0%
2%
4%
6%
8%
10%
12%
(50)
0
50
100
150
200
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Carmel Centers: Absorption and Vacancy
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
(20)
0
20
40
60
80
100
120
140
Thou
sand
s
Net Absorption (YTD) Vacancy (%)
Greenwood Centers: Absorption and Vacancy
Carmel Centers:Absorption and Vacancy
Greenwood Centers:Absorption and Vacancy
Castleton Centers:Absorption and Vacancy
rates included power centers (6.7%), malls
(7.4%), strip centers (10.4%), community
centers (10.9%) and neighborhood centers
(11.5%). Correspondingly, average quoted
asking rental rates for all retail types rose
during the fourth quarter, ending the year
at $11.80 PSF. That compares to $11.64
PSF in the third quarter of 2012 and $11.95
at the end of the fourth quarter of 2011.
Average asking rates among product types
for the final quarter of 2012 included power
centers ($16.42), strip centers ($13.97),
community centers ($11.34), malls ($10.76)
and neighborhood centers ($10.95).
Behind the headline numbers some
notable retail trends, familiar and new,
are emerging in the Indianapolis market
which provide cautious optimism for the
year ahead. First, growth continues to
occur at each end of the spectrum with
both luxury and value-oriented retailers
recognizing gains. Second, strengthening
market fundamentals have provided a boost
that has helped significantly rebalance the
prime trade areas in the form of stronger
shopping center metrics, positively
absorbed mid-box space and increased
competition. Third, price-savvy mobile-
empowered shoppers are changing the way
retailers look at the shopping experience
and prompting an increasing number of
them to embrace omni-channel retailing.
The trends continue to point to a bifurcated
market with growth occurring for luxury
and value-oriented retailers, often at the
expense of mid-priced retailers where the
pace of sales improvement has been slow.
The dollar store sector is entering its third
year of explosive growth with most chains
considering everything from inline space
at shopping centers to more and more
freestanding locations. Though footprints
range from 3,000 square feet to 15,000
square feet, this sector alone stands to
account for 15 million square feet of national
occupancy growth in the coming year when
an estimated 2,000 new stores take root.
Those planning the biggest moves in 2013
include: Dollar General opening as many as
625 stores; Family Dollar expecting to open
at least 500 new stores; and Dollar Tree
planning at least 300 new units. Likewise,
28 | We know The State of Real Estate®
2013 Market ReportRetail Market
high-end luxury and organic grocers also
remain in expansion mode, with Whole
Foods Market on track to open 70 new stores
nationwide within the next two years that will
occupy an estimated 2.8 million square feet.
The retail recovery is making solid progress.
Even with a summer slowdown, net demand
for neighborhood and community center
retail space will easily be the strongest of any
year in the recovery. It is also worth noting
that the economic data that correlates well
with the retail sector is largely promising.
There is a growing list of encouraging
signs pointing to better retail growth in
2013. First, household balance sheets look
incredibly healthy. Based on the debt service
ratio, household finances look as good as
they have since 1993. In other words, if
policymakers can come through and provide
a healthy dose of clarity, then the stage is
set for a much stronger rebound in the retail
sector. Second, although the 24/7 montage
of fiscal cliff coverage dampened consumer
outlook considerably in November and
December, up until that time consumers
didn’t appear terribly concerned about the
state of the economy, as evidenced by the
Consumer Confidence Index reaching its
highest level in nearly five years in October.
Third, the major sea change in the recovery
in 2012 was due to housing. Single-family
home prices have risen in 100 out of 134
metros tracked since the beginning of 2012,
according to the National Association of
REALTORS®. It is well established that
rising home values creates a wealth effect
that leads to stronger consumer spending.
For every $1 increase in home values,
consumer spending typically rises by 5
cents. While that may seem small, the
aggregate effect in the economy and upon
retail is immense. Fourth, consumers are
getting a boost from declining gas prices.
The price of unleaded gas is down almost
20 cents per gallon after peaking at nearly
$3.90 in early September. Given the recent
softening in the world economy coupled with
oil production levels which are near record
highs, gas prices are likely to remain low in
the near term. This bodes well for increased
sales because throughout the recovery the
statistical correlation between gas prices and
retail sales has been an astonishing 0.85.
It’s not surprising then to see that retail sales
have largely trended positive over the latter
half of 2012, with sales of motor vehicles,
clothing and accessories, electronics and
appliances performing well. It was a pleasant
surprise to see that December retail sales
ended with better-than-expected results,
despite setbacks in the form of Hurricane
Sandy and consumer concern related
to the fiscal cliff. Sales for the month of
December rose 4.8 percent excluding
drug stores, according to Retail Metrics,
whose most recent forecast was for a 3.4
percent gain. Costco and Nordstrom led the
gains and lifted the overall rate, with sales
increases of 9 percent and 8.6 percent,
respectively. Other retailers also saw sales
beat expectations, with TJ Maxx and Ross
stores each recognizing 6 percent gains.
Unfortunately, other retailers witnessed
less impressive sales, including Target
reporting that sales were flat compared to
a year earlier, with virtually no change in
comparable store sales and just an 80 bps
increase in total sales. Several of Indiana’s
publicly traded retailers are particularly
vulnerable after having experienced
tepid holiday traffic. HHGregg, Finish
Line and Shoe Carnival all watched share
prices drop over the final two months
of 2012 amid a tough selling season.
On a more positive note, 2012 found
landlords and tenants finding common
ground in deal economics, resulting in
increased leasing activity for well positioned
shopping centers. Neighborhood and
community centers across the Indianapolis
market have been retenanted with yogurt
shops, cell phone stores, restaurants,
automotive parts and service retailers,
fitness centers and health and well care
services. Retailers within these segments
who have been active in taking space
include: Orange Leaf, Yo-Yo Yogurt, T-Mobile,
Verizon, First Watch, DiBella’s, Flap-Jacks,
Firehouse Subs, O’Reilly Auto Parts,
AutoZone, Anytime Fitness, Planet Fitness,
Avon, Salon Lofts and Massage Envy. As
a result, Class A and B shopping centers
are finding their balance with vacancy
decreasing and rents now trending up.
In the prime trade areas of the market,
fundamentals have grown even stronger.
As a result, many mid-box spaces that had
been sitting vacant for a few years were
finally occupied. Burlington Coat Factory,
Shoe Carnival and Forever 21 are a few
of the concepts that expanded and took
advantage of the opportunity to resize their
footprint or reposition in a trade area. The
past year also saw new store growth with
the expansion of Hobby Lobby, Gordmans,
rue21, First Watch and others who opened
multiple units. In select trade areas, like
Keystone at the Crossing where demand
outpaced availability, we saw pop-up or
tenant-driven development where retailers
were willing to pay a premium to out-
position their competition by going into a
two- or three-tenant free-standing building.
Demand for these prime trade areas and
the low cost of capital inspired landlords to
reinvest in their real estate with complete
www.cassidyturley.com | 29
January 2013January 2013
Retail / MARKET TRACKER
Source: Fed. Senior Loan Officer Survey
Source: U.S. Board of Governors of the Fed. Reserve System
Source: Federal Reserve Bank of St. Louis
Carmel Centers:Rental Rates and Vacancy
Greenwood Centers:Rental Rates and Vacancy
Castleton Centers:Rental Rates and Vacancy
Source: Cassidy Turley Research
0%
1%
2%
3%
4%
5%
6%
7%
8%
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
Avg. Asking Rates Vacancy (%)
Keystone Centers: Rental and Vacancy
0%
2%
4%
6%
8%
10%
12%
$0.00
$4.00
$8.00
$12.00
$16.00
$20.00
Avg. Asking Rates Vacancy (%)
Castleton Centers: Rental Rates and Vacancy
0%
2%
4%
6%
8%
10%
12%
$0
$5
$10
$15
$20
$25
Avg. Asking Rates Vacancy (%)
Carmel Centers: Rental Rates and Vacancy
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
$0.00
$4.00
$8.00
$12.00
$16.00
$20.00
Avg. Asking Rates Vacancy (%)
Greenwood Centers: Rental Rates and Vacancy
Keystone Centers:Rental Rates and Vacancy
redevelopment or remodeling of a façade.
While these improvements are noticeable
from the outside, important changes to
how retailers are responding to customer
demands on the inside, through omni-
channel retailing, is also becoming clear.
Omni-channel retailing is very similar to, and
an evolution of, multi-channel retailing, but is
concentrated more on a seamless approach
to the consumer experience through all
available shopping channels (e.g., mobile
phones, tablets, computers, brick-and-mortar,
television, catalog, etc.). It is a consumer-
driven approach where all shopping
channels work from the same database
of products, prices and promotions that
provide consistency across all retail channels.
In essence, the brick-and-mortar stores
become an extension of the supply chain in
which purchases may ultimately occur at the
counter but are researched elsewhere. By
investing large amounts of capital to create
real-time inventory tracking systems and
using existing stores as fulfillment centers,
retailers are seeking the ability to track and
deliver a purchase in the quickest, most
cost-effective manner possible, which may
include same-day pick-up or even same-day
delivery. Nordstrom, Best Buy and Macy’s
are a few retailers that are embracing omni-
channel shopping and exploring new ways
to leverage inventory. Macy’s has doubled
its effort to use its retail stores as distribution
centers; in 2011 Macy’s had 23 stores being
used as fulfillment centers, and by the end
of 2012 they expected that number to grow
to 292 stores. As the world of technology
is changing, so are customer expectations,
and omni-channel retailing is one important
way retailers are also rebalancing in pursuit
of sales. The growth rate for omni-channel
sales strategy could outpace the growth
rate for both e-commerce and retail sales
overall and thus will continue to play a critical
role in retailers’ strategy moving forward.
Looking forward there are many reasons
to believe that strengthening fundamentals
will continue and translate into profitability
in 2013. Improved balance sheets, by both
retailers and households, will translate into
increased retail sales and leasing activity.
Our retail forecast continues to call for an
increase in overall retail and restaurant
sales, particularly in the fast casual segment.
Expect growth at both ends of the spectrum
to continue, with value and discount retailers
in particular posting higher sales volume.
We will see large retailers like JCPenney and
Best Buy adapt footprints and incorporate
new approaches to merchandising. We also
expect to see continued redevelopment of
existing assets and ground up development
that will be tenant-driven. It is likely that
outlet mall expansion will occur, with new
outlet malls being constructed as more
tenants enter the outlet arena. Finally, expect
to see fewer store closures as the retail
market continues to adapt and rebalance.
30 | We know The State of Real Estate®
2012 Market ReportIndustrial Market
www.cassidyturley.com | 30
January 2013Capital Markets
2013 Market Report
INDIANAPOLIS CAPITAL MARKETSAt a glance
The Big Picture: Average U.S. Cap Rates by Property Type
5%
6%
7%
8%
9%
10%
Multifamily Industrial Office (CBD) Office (Suburban) Retail
U.S. Cap Rates by Property Type
Source: Real Capital Analytics
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
Indianapolis Investment Sales Rolling 12-month ($ mil.)Source: Real Capital Analytics, Cassidy Turley Research
050
100150200250300350400450500
Indianapolis Investment Sales Quarterly Volume ($mil.) Source: Real Capital Analytics, Cassidy Turley Research
Central Indiana Investment Sales Rolling 12-month ($ mil.)
Central Indiana Investment Sales Quarterly Volume ($ mil.)
2012 2011
Office Sales (SF) 3,664,000 900,000
Industrial Sales (SF) 7,348,000 7,329,000
Retail Sales (SF) 364,000 514,000
Multifamily Sales (Units) 6,500 6,900
10-year Gov't. Bond 2.8 1.9
WSJ Prime Rate 3.3 3.3
Source: Cassidy Turley Research
Source: Real Capital Analytics
Source: Real Capital Analytics
The Investment Path Feels Familiar
But Opportunity Lies Ahead
The overall trajectory of the 2012
Indianapolis investment market closely
followed the path forged in 2011. Both
years followed a bumpy road with promising
gains in momentum stymied by uncertainty.
In 2011 the concern emanated from the
unsure footing of the U.S. economy and
the continued deleveraging in Europe
as sovereigns and banks grappled
with the ongoing debt crisis. In 2012
continued economic turbulence in Europe
accompanied by pervasive public policy
uncertainty in the U.S. dampened the
lending environment and hampered the
pace of investment sales. The investment
path forward into 2013 feels familiar, with
macroeconomic worries and political
uncertainty making the going rough,
but strengthening fundamentals in both
the economy and the property markets
signal that opportunity lies ahead.
The past year presented a number of
noticeable trends across product types.
First, owners focused on rebalancing,
renovating, retenanting and in some cases
refinancing their properties. Second,
increased availability of debt coupled with
better financing terms allowed investors to
compete more aggressively for properties
and this in turn drove investment sales
higher. Third and most surprising, the
distressed asset piece of the puzzle did
not represent as much of the investment
sales market as originally anticipated.
A few smaller distressed properties did
trade; however, the majority of distressed
Indianapolis assets did not hit the market.
Central Indiana’s strong industrial market
fundamentals—including historically low
vacancy rates, robust net occupancy gains
and increasing rents—piqued investor
interest for industrial property, with new
investors entering the market seeking
improved yields for quality assets. As a
result, the Indianapolis industrial investment
market registered an impressive 7.3 million
square feet of sales in 2012 with a total
www.cassidyturley.com | 31
U.S. Investment Sales Volume (All Types)
$0
$10
$20
$30
$40
$50
$60
$70
$80
Bill
ions
U.S. Investment Volume (All Types)
Source: Real Capital Analytics
January 2013
Investment / MARKET TRACKER
Central Indiana Industrial:Sales by Total $ (mil)
Central Indiana Multifamily:Sales by Total $ (mil)
Source: Real Capital Analytics
Source: Real Capital Analytics
0
100
200
300
400
500
600Rolling 12-mo. Total Quarterly Vol.
Sales by Total $ (mil): IN Industrial
050
100150200250300350400450500
Rolling 12-mo. Total Quarterly Vol.
Sales by Total $ (mil): IN Multifamily
Central Indiana Retail:Sales by Total $ (mil)
Source: Real Capital Analytics
Source: Real Capital Analytics
050
100150200250300350400450500
Rolling 12-mo. Total Quarterly Vol.
Sales by Total $ (mil): IN Office
0
50
100
150
200
250
300
350
400
Rolling 12-mo. Total Quarterly Vol.
Sales by Total $ (mil): IN Retail
Central Indiana Office:Sales by Total $ (mil)
estimated sales volume of $254 million.
Although below the level of sales witnessed
in 2006 ($472.9M), this dollar volume
is markedly higher than 2009 and 2010
($100.6M and $65.2M, respectively) and
is on par with 2011 sales ($272.7M).
Nearly half of the industrial properties which
traded in 2012 were Class A core assets,
thereby proving that investor flight to quality
is continuing. Among the notable sales
transacted over the past year were Axcess
70, Building 1 (423,000 SF), 558 Airtech
Parkway (798,096 SF) and the Mount
Comfort Distribution Center (456,000 SF).
The balance of the remaining properties
which sold were Class B and C assets,
due in large part to the fact that many
institutional owners in the Indianapolis
market continued to retain their modern
bulk assets, prompting investors to look to
older and second-generation properties.
There was a mixture of both one-off asset
sales and portfolio sales in the industrial
arena over the past year. Approximately
2.9 million square feet, or 40 percent,
of the industrial investment transactions
were individual building sales. There
were, of course, notable portfolio sales
which included the Hillsdale Flex Portfolio
(445,385 SF), the KPJV/Prologis Portfolio
(including 2.2 MSF in Indianapolis) and
the JB Management National Portfolio
(with nearly 1 MSF in Indianapolis).
Cap rates across industrial classes
compressed, with the greatest decrease
occurring in Class A assets (150-200 bps).
Single-tenant assets, such as the Epson
building (751,000 SF) and the Central
Restaurant Supply building (103,000 SF),
saw cap rates in the low-to-mid 7 percent
range. Meanwhile, Class B/C properties
witnessed cap rates compress between
45-75 bps, with properties trading in the
mid-9 percent to upper-10 percent cap
rate range. Despite this compression,
the corresponding average price per
square foot did not increase and in fact
posted year-over-year declines, due in
part to the large number of second-
32 | We know The State of Real Estate®
2013 Market ReportCapital Markets
generation transactions that occurred.
In the office arena the bifurcation in the
market continued, with core Class A office
properties performing well while older,
lower-occupied assets continued to struggle.
The economic recovery has been merciless
when choosing winners and losers. The
winners are the well-located Class A
assets; the losers are essentially everything
else. Class A space has accounted for
over 65 percent of net absorption in the
Indianapolis multi-tenant office segment
since the beginning of 2011. Although this
flight to quality is a necessary part of the
recovery process, it is not representative of
a healthy commercial real estate market.
A healthy market is one that has enough
growth for demand to extend to lower-
quality products. In 2006, the last truly
healthy year for the property markets, net
demand for office space was nearly evenly
split between Class A and Class B space.
At first glance investment sales volume for
Indianapolis office product skyrocketed in
the past year, up 275 percent from 2011,
to $461 million. The key to unlocking these
numbers is the recognition that Chase Tower
(1,057,852 SF) traded twice in calendar
year 2012, once in January to Beacon
Capital Partners as part of a larger portfolio
and then a second time in October when
CommonWealth REIT took ownership.
Excluding these two notable investment
deals in 2012, the Indianapolis market
experienced $89 million in volume with 1.5
million square feet transacted, compared
to a 2011 investment sales tally of $124
million with 900,000 square feet transacted.
Here too first glances are deceiving, namely
because 2011 followed a similar pattern as
2012 with a single transaction, the sale of
INTECH 1-3 for $85 million, elevating the
annual sales volume and the square feet
transacted. Excluding these outliers from
both years provides a much more insightful
perspective and shows that 2012 office
investment sales were double the levels
witnessed in 2011. Quite simply, more
office investment deals closed and they are
transacting in a plethora of ways: off-market
sales, 1-2 bidder transactions, portfolio
sales, auctions, partner buyouts and loan
sales have all occurred. Nevertheless, it is
encouraging to see properties that have been
on the market for a while finally garnering
the investor interest needed to trade.
Strengthening office market fundamentals
and the emergence of well-located, high-
quality assets is supporting the increase in
investment activity and has resulted in cap
rates compressing over the last two years.
As a result, the market is now seeing stable
office properties which previously traded
in the 10-percent-plus cap rate range in
2010 trade in the 8 percent cap rate range
in 2012. It is also worthy to note what the
market did not see, namely large distressed
asset sales. With only three of the notable
office deals in 2012 associated with bank or
REO sales, expect to see several large REO
deals proceeding to market in 2013 or 2014.
On the retail front, the Indianapolis market
is beginning to see a resurgence of investor
interest in all types of retail property—single-
tenant, Class A, Class B and distressed—
because the yields are higher than that
which investors can obtain in multifamily, yet
Property Name Address City Square Feet
KPJV/ProLogis Portfolio Sale (6 Bldgs.) Plainfield 2,248,000*
JB Management National Portfolio Sale (4 Bldgs.) Greater Indianapolis 1,000,000*
Epson DC 2350 Stafford Rd. Plainfield 751,000
2001 Commerce Parkway 2001 Commerce Pkwy. Indianapolis 704,000
Crossroads Distribution Package Portfolio Sale (2 Bldgs.) Greenwood/Mt. Comfort 539,000
Franklin Road Business Center 3131 N. Franklin Rd. Indianapolis 489,000
Hillsdale TechneCentre Portfolio Sale (6 Bldgs.) Indianapolis 446,000
Axcess 70, Building 1 3023 N. Distribution Way Mount Comfort 423,000
Building 56/Piper Logistics 8175 Allison Ave. Indianapolis 300,000
Central Restaurants 7750 Georgetown Rd. Indianapolis 103,000
4400 W. 96th St. 4400 W. 96th St. Carmel 97,000
Zionsville Three 7750 N. Zionsville Rd. Indianapolis 80,000
Jefferson Building 5945 W. 84th St. Indianapolis 73,000
ARS Service Express 25 Woodrow Ave. Indianapolis 72,000
Park 465 3315-3353 W. 96th St. Indianapolis 24,000
Notable Greater Indianapolis Investment Industrial Sales—YTD 2012Arranged by square feet transacted
*Indianapolis component (SF). Source: Cassidy Turley Research
www.cassidyturley.com | 33
January 2013
Investment / MARKET TRACKER
Source: Real Capital Analytics
Source: Real Capital Analytics
0
50
100
150
200
250
300
350
400
J F M A M J J A S O N D
2012 2011 2010 2009
Cumulative Monthly Volume $ (mil): IN Industrial
0
50
100
150
200
250
300
350
400
J F M A M J J A S O N D
2012 2011 2010 2009
Cumulative Monthly Volume $ (mil): IN Multifamily
Source: Real Capital Analytics
Source: Real Capital Analytics
0
100
200
300
400
500
600
J F M A M J J A S O N D
2012 2011 2010 2009
Cumulative Monthly Volume $ (mil): IN Office
0
50
100
150
200
250
300
350
400
J F M A M J J A S O N D
2012 2011 2010 2009
Cumulative Monthly Volume $ (mil): IN Retail
Central Indiana Multifamily:Cumulative Monthly Volume $ (mil)
Central Indiana Office:Cumulative Monthly Volume $ (mil)
Central Indiana Industrial:Cumulative Monthly Volume $ (mil)
Central Indiana Retail:Cumulative Monthly Volume $ (mil)
the risks are not considered as high as they
might be for some office or industrial assets.
All in all, retail sales are beginning to reflect
a tightening of cap rates with ranges moving
from the 10+ percent seen from 2009 to
2011 to a current range of 8.0 to 8.5 percent
for high-quality, well leased retail centers.
Meanwhile, select single-tenant retail
assets are trading in the 7 percent range.
Retail sales, on a square foot basis,
occurring in Indianapolis during 2012 were
a bit lower but in line with the prior year.
Taking a slightly broader look at the Central
Indiana retail market, the metrics are better
with year-over-year gains of 30 percent. It is
striking to note that the increase in square
feet transacted in the Central Indiana retail
market was primarily the result of numerous
small retail centers trading hands and
Source: Cassidy Turley Research
Property Name Address City Square Feet
Chase Tower* 1 E. Ohio St. Indianapolis 1,100,000
Penn Mark I/II 11555-11595 N. Meridian St. Indianapolis 248,000
Heritage Park I/III 6606-6612 E. 75th St. Indianapolis 246,000
Parkstone I-IV 9001-9101 N. Wesleyan Rd. Indianapolis 202,000
Consolidated Building 115 N. Pennsylvania St. Indianapolis 187,000
Fortune Park 11 4040 Vincennes Cir. Indianapolis 150,000
Heritage Park II 6666 E. 75th St. Indianapolis 84,000
Haverstick I/II 8200-8250 Haverstick Rd. Indianapolis 80,000
Meridian Technology Park Bldg. 11711 N. College Ave. Indianapolis 74,000
Pennwood I/II 11405 N. Pennsylvania St. Indianapolis 73,000
Clifton Gunderson 9335 Priority Way Indianapolis 63,000
Allen-Christy/Approved Mortgage Bldg. 107 N. SR 135 Greenwood 57,000
Notable Greater Indianapolis Investment Office Sales—YTD 2012Arranged by square feet transacted
*Sold twice in calendar year 2012. Source: Cassidy Turley Research
Property Name Address City Square Feet
Riverplace Center 152-180 W. Logan St. Noblesville 74,000
Indian Creek Commons 10625 Pendleton Pike Indianapolis 60,000
Crooked Creek Center 7818-7880 N. Michigan Rd. Indianapolis 51,000
116th Street Centre 820 E. 116th St. Carmel 46,000
Carmel Shopping Center 1017 W. Main St. Carmel 37,000
Raceway Commons 55 S. Raceway Rd. Indianapolis 33,000
Fishers Crossing Shopping Center 7254 Fishers Crossing Dr. Fishers 30,000
Notable Greater Indianapolis Investment Retail Sales—YTD 2012Arranged by square feet transacted
34 | We know The State of Real Estate®
2013 Market ReportCapital Markets
was not the product of one or two large
assets or portfolio sales elevating the total
amount. The greatest retail investment
activity was focused on Class B product, as
investors pursued opportunities with upside
through lease-up and or repositioning.
The sale of Riverplace Center (74,000
SF) in Noblesville is one such example.
Distressed sales (typically bank- or special-
servicer-owned) in all property types
occurred to a lesser degree in 2012 than
in the previous year. One likely reason
for the decrease was the low interest
rate environment, which provided some
owners enough room to maneuver out of
potential foreclosure through refinancing.
Because distressed assets typically involve
a significant amount of turnaround and
lease-up costs, those distressed properties
which did trade largely sold on a price-per-
square-foot basis at a significant discount
to replacement costs. With strengthening
fundamentals underlying the retail segment
and positive signs emerging, including
increased leasing velocity due to a higher
number of retailers seeking to open stores,
fewer distressed retail assets sales are
expected moving forward. Further, continued
improvement in the retail investment market
is likely as owners who have retenanted and
renovated, while anxiously waiting for the
market to recover, bring rebalanced Class
A, B and C properties to market for sale.
The multifamily sector remained the
perennial favorite for investors, whether
selling, buying, or developing. Investor
interest seems to be driven by several
factors, including inherent yield growth
attained due to the structure of shorter-term
leases; strong market fundamentals such
as positive net absorption, low vacancy
rates and corresponding increase in rental
rates; and multiple sources of available
financing. In Indianapolis the multifamily
sector remains in reasonable growth mode
with year-over-year vacancy declines and
a vacancy rate tracking below 6 percent.
Despite the delivery of approximately
2,500 units in 2012, rates are expected
to continue to decline for the next 24
months. Further, strong demand metrics
are expected to drive new development in
2013 with an anticipated 1,500 new units
slated for delivery in the months ahead.
With nearly 6,500 units sold in 2012,
multifamily sales volume remained robust.
Increased investor interest in Central Indiana
has compressed cap rates to the mid-to-low
6 percent range, nearly 100 bps below prior
year levels. Because cap rate compression in
primary markets has dropped into the mid-
to-low 5 percent range, investors continue to
seek higher yield opportunities in secondary
markets like Indianapolis. This is expected
to continue in 2013 as investors, especially
out-of-town buyers, continue their search
for higher yields in secondary markets
with strong underlying fundamentals.
Looking forward, there are reasons to remain
confident in the Indianapolis investment
market and there are several trends to
watch. First, financing will remain available.
Accommodating monetary policy and a
CMBS market that is expected to actively
pursue lending opportunities in secondary
markets bodes well for Indianapolis. Second,
there will be more recapitalization. With
an estimated $1.7 trillion in commercial
real estate debt maturing by 2016, lenders
and special servicers will be faced with
determining whether to work out these
loans or foreclose. Third, total transaction
volume will continue to rise. Across all
property classes core assets will still be
preferred but sellers should be able to
leverage a competitive buying environment,
moving pricing closer to the levels
experienced in 2005, 2006 and 2007.Source: U.S. Labor Dept., U.S. Dept. of Commerce, Federal Reserve
Monetary Policy: Federal Reserve Thresholds for Interest Rates
-3%
-1%
2%
4%
6%
8%
10%
2005 2006 2007 2008 2009 2010 2011 2012
Jobless Rate Hits 6.5%or Inflation Forecast Rises Over 2.5%
Unemployment Rate
Inflation
Source: U.S. Labor Department, U.S. Department of Commerce, Federal ReserveMonetary Policy: Federal Reserve Thresholds for Interest Rates
January 2013
www.cassidyturley.com | 35
Investment / MARKET TRACKER
Central Indiana Multifamily: Buyer Profile
Central Indiana Office: Buyer Profile
Central Indiana Retail: Buyer Profile
January 2013
Property Name Address City Units
Cottages of Fall Creek 6802 E. 56th St. Indianapolis 753
Astoria Park 3640 Beluga Ln. Indianapolis 470
Forest Hills 5615 Pleasant Hills Cir. Indianapolis 420
Oaktree 9012 Pinehurst North Dr. Indianapolis 396
Salem Courthouse 7007 Courthouse Dr. Indianapolis 388
Hillcrest Woods 6201 Newberry Rd. Indianapolis 384
Emerson Village 5325 Emerson Ave. Indianapolis 352
Northlake Village 1100 Northlake Dr. Noblesville 348
Stone Ridge 7111 Vedder Place Indianapolis 320
Brockton 5778 Brockton Dr. Indianapolis 284
Gladden Farms I & II 311 Country Ln. Plainfield 220
Cosmopolitan on the Canal 310 W. Michigan St. Indianapolis 218
Hermitage 2226 Hermitage Way Indianapolis 208
Vineyard at Apple Creek 10101 Montery Rd. Indianapolis 198
Runaway Bay 2030 Runaway Bay Dr. Indianapolis 192
Oak Lake at Crooked Creek 3885 Oak Lake Cir. Indianapolis 192
Arlington Green 6046 E. 21st St. Indianapolis 180
Autumn Trails 7975 Red Mill Dr. Indianapolis 164
Gardens of Greenbriar 1344 Viburnum Dr. Indianapolis 121
Harbour Town 401 Harbourtown Dr Noblesville 104
Greenway 5300 E. 21st St. Indianapolis 96
Glen Ridge Manor 4737 E. 19th St. Indianapolis 80
Frederick Square 6046 E. 21st St. Indianapolis 65
Fox Hill 1300 W. Fox Hill Dr. Indianapolis 60
Woodview Terrace 9122 E. 10th St. Indianapolis 57
Cold Springs Manor 2638 Cold Springs Manor Dr. Indianapolis 51
Willow Brook 2111 East 52nd St. Indianapolis 51
La Casa 1368 N. Arlington Rd. Indianapolis 45
Ritter Manor 2302 Ritter Ave. Indianapolis 42
Meadow Drive 268 Meadow Dr. Greenwood 12
Source: Real Capital Analytics, Cassidy Turley Research
Notable Greater Indianapolis Investment Multifamily Sales—YTD 2012Arranged by number of units
Institutional34%
Public Listed/REITs23%
Private36%
User/Other7%
Indiana Industrial Sales: 2012 Investment Buyer Profile
Institutional27%
Public Listed/REITs13%
Private60%
Indiana Multifamily Sales: 2012 Investment Buyer Profile
Institutional34%
Public Listed/REITs50%
Private15%
User/Other2%
Indiana Office Sales: 2012 Investment Buyer Profile
Public Listed/REITs24%
Private61%
User/Other15%
Indiana Retail Sales: 2012 Investment Buyer Profile
Source: Real Capital Analytics
Source: Real Capital Analytics
Source: Real Capital Analytics
Source: Real Capital Analytics
Central Indiana Industrial: Buyer Profile
January 2013
www.cassidyturley.com | 3636 | We know The State of Real Estate®
INDIANAPOLIS LAND MARKETAt a glance
An Idle Land Market Finally Receives a Glimmer of Hope as 2012 Fades
The Central Indiana commercial land market experienced a slowdown in 2012, with completed parcel transactions below 2011 numbers. With a decline in available capital and an almost nonexistent demand for new inventory, speculative land purchases fell to new lows as investors struggled to move inventory. Developers, sensing a renewed demand in industrial applications, are choosing to develop inventory purchased in prior years instead of increasing holdings. While transaction numbers were down, the land picture in Central Indiana is not entirely bleak. Residential development, both multi- and single-family, continued to increase at a steady if tentative pace, and the number of traded parcels exceeding assessed values climbed to 95 percent during 2012. Additionally, Midwest agricultural parcels began changing hands at a greater rate as food producers sought to acquire productive cropland in order to reap better benefits in a surging grain market.
Although prices remain 40 to 60 percent off their high, investors and developers remain bearish on the commercial land market in Indiana. Financing has been largely unavailable for any development not significantly pre-leased. As such, speculative development has been practically nonexistent in the market. There has been a small level of activity among companies looking to purchase land for the development of space which they can ultimately occupy. Even among these owner-users, development of new space competes directly against existing space, which continues to be marketed at discounted prices. Industrial sector commercial development began to increase in 2012, but with few exceptions developers chose to build on parcels they already held. As access to capital becomes easier, development may slowly begin to return to the Indianapolis speculative multi-tenant office market but
U.S. Housing Market Index (SA)Source: National Association of Home Builders
0
10
20
30
40
50
60
70
80
Arbor Homes
Pulte Group
Ryland Group
Beazer Homes
Westport Homes
Fischer Homes
MI Homes
Ryan HomesDavid Weekley Homes
Central IN Residential Construction by Builder (Nov. YTD, 25+ units)Source: Permit Analysis Report
U.S. Housing Market Index (SA)
Central Indiana Residential Construction by Builder (Nov. YTD, 25+ units)
2012 (e) 2013 (f)
Population (000) 1,803.5 1,828.3
Single-family permits 3,878 5,908
Multifamily permits 1,768 2,103
Existing-home price ($ths) 127.3 127.6
Mortgage originations ($mil) 9,014 6,241
Net migration (000) 11.8 11.7
e: Estimate; f: Forecast Source: Cassidy Turley Research
Source: National Association of Home Builders
Source: Permit Analysis Report
with tighter capital requirements and not on the scale previously seen. Within the retail sector, development activity continued to decline as it has for 24 months, off nearly 60 percent, as both the size and scope of development projects shrank due to slack tenant demand and elevated vacancy rates.
The land market remained depressed in 2012 when compared to pre-recession rates, but the indicators were not all grim. Nationally, total housing starts increased at a rate of 18 percent from 609,000 in 2011 to 740,000 in November 2012, which was reflected in Central Indiana’s increase of 8 percent in the same period. Multifamily housing was the belle of both the national and local balls, with a national increase of 52 percent and a local increase of 8 percent over 2011 numbers. Single-family home sales decreased in number both nationally and locally, but local median and average sale prices not only held their ground but increased slightly, indicating a higher value for sellers when purchases were made. The 2012 median price for single-family homes was $122,938, up from $103,000, while the 2012 average single-family home price rose to $130,228 from 2011’s $126,087. With single-family housing starts up 2 percent from 2011, Central Indiana is actually doing better than the rest of the country, in which single-family housing starts declined 4.1 percent from 589,000 to 565,000.
Depressed land prices and recession-stalled residential developments are becoming an opportunity for builders who survived the housing crash beginning in 2007. Many such developments have existing infrastructure in place and are available at discount prices, making them attractive to builders seeking low-priced acreage to revive. An example of this trend is the March 2012 purchase of Persimmon Grove, a 37-acre subdivision located in Avon, Indiana, near Ronald Reagan Parkway and County Road 200 North. Originally envisioned as a duplex community aimed at buyers 55 and older
January 2013Land Market
2013 Market Report
January 2013
www.cassidyturley.com | 37
in 2006, Persimmon Grove’s development stalled when economic factors rendered the properties unattractive to the intended clientele. Pulte Homes, a Michigan-based homebuilder, purchased and reimagined the development and rezoned the land for single-family homes on larger lots. This resulted in 123 home sites that will accommodate ranch-style homes starting in the low $100,000s, comfortably below the $130,228 average price. Unfortunately, the supply of such attractive, partially-developed properties is dwindling in Central Indiana, according to Arbor Homes, a locally based builder. Arbor Homes itself purchased 13 struggling developments and has had good results in selling its homes. As the number of available partially developed properties declines, developers are eyeing raw land to develop, but starting from scratch is more expensive, and thus developers will tread carefully when returning to the land market. Currently, the rebound in home sales hasn’t exhausted the inventory of lots already planned before the housing market crash, so raw land demand should continue to be low in 2013.
Midwest agricultural land sales continued an upward trend in 2012, with lower buyer interest rates added to the specter of ownership higher taxes resulting in a flurry of increased demand and largely cash purchases. Increased demand over the past several years has led to a steady increase in the per-acre value of farmland in the Midwest, which seemed to spur on owners previously hesitant to sell. The result has been a change in the current seller profile with non-farming ownership selling to local farmers seeking to capitalize on higher production values as well as acquire previously unavailable local land holdings.
Farmland values in Indiana also showed an increase of value in the first half of 2012, with the Purdue Land Value Survey reporting a 16.3 percent value increase over the previous 12 months. The Federal
January 2013January 2013
Reserve Bank of Chicago also found the value of “good” farmland in the Chicagoland area climbed 15 percent by mid-year 2012. Although farmland values should remain high in 2013, a normal growing season and higher productivity should conspire to slow the rate of increase.
Looking forward to 2013, bankers and regulators anticipate farmland prices to moderate in part because many buyers are farmers acquiring land with cash instead of speculators using borrowed money. Even with this year’s drought, farmers buying land have cash on hand from crop insurance payouts and, when possible, record incomes from corn and soybeans harvested during the year. Farmland values also depend on factors such as long-term interest rates, real estate taxes, and alternate investment opportunities.
Although sales were light in 2012, local professionals estimate that the era of incredible land bargains in great areas has largely passed; those able to hold onto ground through the downturn did so, while those who couldn’t sold land at bargain prices. These bargain prices are, for the most part, gone. Local agricultural land prices are rising due to slightly increased demand, and farmers who may have sold ground a few years ago won’t do so due to the tremendous returns in agriculture.
Local real estate professionals seem to hold cautious optimism for the land sector, with increased numbers anticipating good or excellent profitability in the market. Opinions are universal that job growth remains the dominant factor in accelerating an economic recovery. However, given the strength of both national and local multifamily markets, and absent an abrupt increase in unemployment or a further downturn in the economy, we can look forward to the land sector increasing demand and prices incrementally in the next 12 months, with a possible positive prognosis in the next 24 to 36 months.
Land / MARKET TRACKER
Source: REIS, Cassidy Turley Research
$3$3$3$3$3$4$4$4$4$4$4$4
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
Industrial (SF) Asking Rent ($)
Indianapolis Industrial Completions & Rents
Forecast
Note: Hamilton and Marion Counties Only REIS, Cassidy Turley Research
Source: REIS, Cassidy Turley Research
Source: REIS, Cassidy Turley Research
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
Office (SF) Asking Rent ($)
Indianapolis Office Completions & Rents
Forecast
Note: Hamilton and Marion Counties Only REIS, Cassidy Turley Research
Indianapolis Multifamily Completions & Rents
Source: REIS, Cassidy Turley Research
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Multifamily (Units) Asking Rent ($)
Indianapolis Multifamily Completions & Rents
Forecast
REIS, Cassidy Turley ResearchNote: Hamilton and Marion Counties Only
Indianapolis OfficeCompletions & Rents
Indianapolis Retail Completions & Rents
Indianapolis Industrial Completions & Rents
$0
$2
$4
$6
$8
$10
$12
$14
$16
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Comm./Neigh. Ctrs. (SF) Asking Rent ($)
Indianapolis Retail Completions & Rents
Forecast
Note: Hamilton and Marion Counties Only REIS, Cassidy Turley Research
38 | We know The State of Real Estate®
Executive Management Team
Jeffrey L. Henry, SIORRegional Managing Principal
Patrick B. Lindley, SIORSenior Managing Director, Principal
Timothy J. Michel, CPASenior Managing Director, PrincipalProperty Management
Industrial Services
J. Bart Book, SIORSenior Vice President, Principal
Fritz A. Kauffman, SIORVice President, Principal
Grant M. LindleyAssociate
Patrick B. Lindley, SIORSenior Managing Director, Principal
Bryan W. Poynter, SIOR, CCIMVice President
Donald A. TreibicSenior Vice President, Principal
Todd T. Vannatta, SIORSenior Vice President, Principal
Michael W.M. Weishaar, SIORSenior Vice President, Principal Industrial Division Manager
Luke J. Wessel, SIORSenior Managing Director, Principal
Office Services
Darrin L. Boyd, SIOR, CCIMManaging Director, Principal
John A. Crisp, SIORSenior Managing Director, Principal
Gerry “Spud” DickAssociate
Andrew D. Martin, SIOR, CCIMSenior Vice President, Principal Office Division Manager
G. Bryan Miller, J.D., SIOR, CCIMAssociate Vice President
David A. Moore, SIOR, CCIMManaging Director, Principal
Jon R. Owens, SIORManaging Director, Principal
Michael R. Semler, SIORSenior Managing Director, Principal
Russell A. Van TilAssociate Vice President
Bennett M. WilliamsAssociate
Retail Services
John G. ByrneVice President
Bill S. FrenchSenior Managing Director, Principal
Allison Hawley, CCIMVice President
Jacqueline Haynes, CCIMSenior Vice President Retail/Land Division Manager
Donald R. WilliamsSenior Vice President, Principal
Capital Markets
J. Jeffrey Castell, SIOR, CCIMSenior Managing Director, Principal
Michael B. Drew, CCIMSenior Vice President, Principal
T. Scott Pollom, CCIMSenior Vice President, Principal
Rebecca L. Wells, CCIMSenior Vice President
Angela J. Wethington, J.D., CCIMSenior Vice President
Land Services
William F. Flanary, ALCSenior Vice President
James M. “Bo” Leffel IVAssociate Vice President
Auction Services
J. Robert GettsDirector
G. Raymond Simons III, ALCAssociate Vice President
Kelly L. Williams, CCIM, LEED APAssociate Vice President
Project and Development ServicesRobert A. DuggerDirector, Principal
Location Advisory and Incentives Services
Kathleen Z. Culp, MBASenior Managing Director, Principal
Sarah CrabtreeSenior Manager
Property Management
Cheri L. Shepherd, CPMManaging Director, Principal
Melissa Day, CPM, RPAVice President, Principal
Marketing Services
Jennifer Tuttle BlattlerMarketing Director
Alan L. Inkenbrandt Graphic Designer
Barbara H. MatthewsAssociate
Danelle L. NagelAssociate
Research Services
Jason W. Tolliver, J.D.Research Director
Shawn L. StroudResearch Associate
One American Square
Suite 1300
Indianapolis, IN 46282
Phone: 317.639.0515
Fax: 317.639.0504One American Square, Suite 1300Indianapolis, IN 46282317.634.6363cassidyturley.com
About Cassidy TurleyCassidy Turley is a leading commercial real estate services provider with more than 3,700 professionals in more than 60 offices nationwide. The company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $22 billion in 2011, manages 455 million square feet on behalf of institutional, corporate and private clients and supports more than 28,000 domestic corporate services locations. Cassidy Turley serves owners, investors and tenants with a full spectrum of integrated commercial real estate services—including capital markets, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting. Cassidy Turley enhances its global service delivery outside of North America through a partnership with GVA, giving clients access to commercial real estate professionals in 65 international markets. Please visit www.cassidyturley.com for more information about Cassidy Turley.
Copyright © 2013 Cassidy Turley. All rights reserved.
Integrated, Tailored Solutions
• Cassidy Turley provides clients with a full suite of comprehensive real estate solutions, including investor services, occupier services, specialty services and industry-specific services.
• By partnering with Cassidy Turley, clients gain a true business advocate.
• Our nimble approach and service delivery model allow our professionals to devise the most appropriate, comprehensive response to each client’s needs.
Offering Comprehensive Services
• Auction Services
• Distressed Assets
• Financial Advisory
• Food and Beverage
• Golf and Resort Properties
• Government Contracting
• Government Services
• Healthcare
• Higher Education
• Hospitality
• Investment Services
• Law Firm
• Life Sciences
• Location Advisory and Incentives
• Mission Critical
• Net Lease
• Not-for-profit
• Private Client
• Supply Chain Logistics
• Sustainability Services
Practices and Specialties
Our practice groups include professionals with considerable expertise unique to particular property types and within specific industries.
Core Services
• Tenant Representation
• Project Leasing
• Property Management
• Project and Development Services
• Capital Markets - Debt Placement - Investment Sales - Note Sales - Structured Finance
• Corporate Services - Facilities Management - Portfolio Administration - Project Management - Strategic Consulting - Transaction Management
Real Estate
• Office
• Industrial
• Retail
• Multifamily
• Land
cassidyturley.com