Brokerage Outlook: Indiana

• Indianapolis Retail   

• Indianapolis Industrial  

• Indianapolis Multifamily  New!

• Indianapolis Office

Indianapolis Retail Hovey Submitted by Donna Hovey, vice president -- Retail Sales and Leasing with the Indianapolis office of CB Richard Ellis.  Posted Online 5-29-08. What area is your expertise? The CBRE Retail team represents landlords and brokers in central Indiana. What trends do you see presently in retail development in your area? Increase in Mixed-Use Developments Development of Lifestyle Center and/or redevelopment, which includes a lifestyle center-like addition What type of retail product is doing well in your area? Grocery anchored centers; Town Centers/Lifestyle Centers and Malls What retailers are new to your area?            Squeeze; Moochie & Co; Garden Ridge; Harlem Furniture; Fogo de Chao: Embarq; Taste of Tango; Ridemakerz; Stir Crazy; Adobo Grill; Golfsmith; Jared Jewelers; Marmi; Strasburg Children; Z’s Oyster Grill; Granite City Brewery; Grand Traverse City Pie Company and BJ’s Brewhouse Who are the active retail developers in your area? Kite Realty; Mann Properties; Welbourne Development; Pine Tree; Buckingham Please name one or two significant retail developments in your area. What impact will these projects have on the market? Redevelopment of Glendale Town Center: Kite Realty has re-developed this mid-town retail enclosed mall to become a Target and Macy’s anchored, power center (with a town feel). B-shop buildings have been added to surround the existing Macy’s — new retailers include Squeeze, Lenscrafters, AT&T and Catherine’s. Target will open in late July. Panera Bread opened a new restaurant at the site, with a drive-thru. Where is the majority of development taking place? Why is this area doing well? The majority of the development in central Indiana is happening to the far North (Fishers/Noblesville) and far South (Greenwood/Bargersville). These areas continue to do well as they are densely populated with growing population numbers; Household incomes are above average and families dominate the neighborhoods. What area do you expect to be the next big retail development market? Why? I suspect that with the new highway interchange along Interstate 74/Brownsburg this area will experience a “boom”. Additionally, the SR 135 corridor is poised for expansion and developers have purchased/optioned most of the available raw ground. Please describe the retail leasing activity in your area.  Activity has definitely slowed but retailers are still in the market, looking for space. Hardest hit retailers –home improvement and furniture have all but halted their new market entry. New concepts continue to identify Indianapolis as a solid, steady market for their food and apparel concepts. Please give a measure of retail vacancy rates and a measure of available sublease space. SEE CHART What types of retailers should look into your market in the coming year? What type of retail is needed? Restaurants will continue to enter the central Indiana market as Hoosiers continue to spend “food away from home” dollars.

Indianapolis Industrial Submitted by Mark Writt, senior vice president with the Indianapolis office of CB Richard Ellis. What area is your expertise? Indianapolis and Central Indiana Industrial buildings sales and leasing and land sales. What trends do you see presently in industrial development in your area?  The Indianapolis industrial market got off to a strong start this year with 2.5 million square feet (MSF) of positive net absorption recorded for the first quarter 2008. Completed deals during the quarter included Fastenal Company (435,000-SF purchase), National Distribution Centers (230,000-SF expansion), Firestone Building Products (221,000-SF lease), Adidas (162,000-SF lease) and Remy International (57,000-SF lease) to name a few. This increase in activity from year-end 2007 helped the overall industrial vacancy rate lower from 7.9 percent to 7.7 percent. Several move-ins by companies that signed deals late in 2007, such as CVS Indiana LLC. in Mount Comfort, as well as Gatorade’s occupancy of its mammoth 1.1 MSF build-to-suit (BTS) facility in Ameriplex also contributed to this vacancy reduction. Another factor enabling vacancy to lower was the slowdown of speculative construction, particularly in the bulk market after 7.5 MSF of mostly speculative, bulk construction occurred in 2007. In fact, no new construction of any kind was completed during the 1st quarter as developers took a step back to allow this new bulk product to be absorbed. This doesn’t mean development has stopped however. Developers have just shifted focus to other product types. Meanwhile, the bulk market is still experiencing construction, but of the BTS variety. Several noteworthy BTS projects are currently under construction or will be starting shortly including Prime Distribution (1.2 MSF), SMC Corporation of America (668,000 SF), Medco Health Solutions (340,000 SF), ASI Limited (180,000 SF) and Goodwill Industries of Central Indiana (101,000 SF). Look for this trend of BTS bulk development in lieu of speculative bulk development to continue. What type of industrial product is doing well in your area? Type II medium warehouse space and Type III bulk distribution space.  Type II space is experiencing strong demand. Organic growth and the desire by many companies to own their space has fueled the need for this product.  Developers have not ignored this trend and have completed medium warehouse projects this year.  The Northeast area and Saxony in Noblesville, as well as Plainfield have gained new space from Verus Partners, Precedent, First Industrial, Coastal Partners and Mann Properties.  Likewise, Panattoni has added 161,280 SF of medium space along Interstate 65 on the south side. Who are the active industrial developers in your area? Duke, Browning, Lauth and ProLogis.  Duke, Lauth and ProLogis are all active in bulk distribution development.  Duke will begin construction on 2 speculative bulk buildings, one at AllPoints Midwest (646,380 SF), and a second spec bulk building at Anson (750,820 SF). Precedent, Coastal Partners, Verus and First Industrial are currently active with spec development of medium distribution projects in Greenwood; Precedent and First Industrial in Saxony in Noblesville; and Coastal Partners at the Airport. Please name one or two significant industrial developments in your area.  What impact will these projects have on the market? Duke Realty & Browning Investments are developing 2 of the largest Industrial projects in Central Indiana.  The two developments, AllPoints Midwest in Plainfield and Allpoints at Anson in Boone County will encompass more than 1,500 acres and will offer bulk distribution product along I-65 in the northwest corridor and along I-70 at the New Ronald Reagan Parkway just north of the Indianapolis International Airport.  AllPoints Midwest and AllPoints at Anson will offer speculative bulk distribution warehouse space and build-to-suit sites for development for end users looking to locate in the Central United States. Where is the majority of development taking place? Why is this area doing well? Plainfield has been the most active area for development.  Plainfield and the west side of Indianapolis has benefited from superior infrastructure, the availability of tax abatement and a large base of speculative warehouse space.  The Indianapolis International Airport, the Interstate 70 corridor infrastructure, the second largest Fed Ex Hub in the United States and the availability of labor in Plainfield, Avon, Brownsburg and the Westside of Indianapolis continues to draw employers to the area. What area do you expect to be the next big industrial development market? Why? Whitestown on the northwest side of Indianapolis along I-65; Plainfield on the west side of Indianapolis along the I-70 corridor; and Mt. Comfort along I-70 on the eastside. Browning plans industrial buildings ranging in size from 270,000 sf to 753,000 SF on a 154-acre site bordering Mt. Comfort Airport in Hancock County.  Browning is pursuing additional land for development along I-70 at the Mt. Comfort Exit in the east submarket to offer an alternative to the Plainfield area.  The Precedent Cos. was the original developer in the Mt. Comfort area.  They built three modern bulk distribution facilities on a speculative basis.  The Mt. Comfort area has successfully attracted Emerson Electronics, Reebok, Caterpillar Logistics and CVS Pharmacies to their facilities and are currently under construction with a mid sized distribution facility.  The I-70 Exit at Mt. Comfort is currently being widened and rebuilt to accommodate the future growth anticipated for the area.  The new interchange shall be completed by the end of 2008.  I-70 will continue to develop west of Exit 39 in Hendricks County with Lauth’s Westpoint development.  Infrastructure for this project is scheduled to start third quarter 2008.  Development will continue on this new North-South corridor connecting I-65 and I-70 and development will take place at the new interchange at I-74 and Ronald Reagan Parkway. Please describe the industrial leasing activity in your area.  The East and Airport submarkets saw the highest absorption, with a combined figure of approximately 2.4 million sf.  Rental rates have slowly begun to rise for medium and flex space.  The bulk activity has been slower than years past, but is still active. Bulk distribution rental rates have remained relatively flat, due to the current inventory of product.  Users have a variety of options and landlords are sharpening their pencils to get the deals in the market.  While concessions such as fixture upgrades and tenant improvement monies are common, free rent is currency of choice for the tenant. Rental rates have slowly begun to rise for medium and flex space.  As noted in our market highlights, this is because the demand for medium space has been growing and little new flex space has been built.  This is a positive sign for the owners of these types of properties and a change of focus for developers. Please describe the industrial sales activity in your area. Less expensive second generation space has been absorbed in the past three quarters as companies are tying to control and reduce occupancy costs.  Sales activity for smaller buildings from the 20,000 to 50,000 square feet range has been active in 2007 and into 2008.  The inventory for larger buildings for sale is low, and we have very little product available for sale over 75,000 SF.  The availability of modern bulk space for lease will continue to offer affordable alternatives to ownership.  More companies have been interested in utilizing their capital for expanding and growing their operations as well as corporate growth through acquisition. Many have found capital offers a better return when put to work in the operations rather than a non productive asset such as real estate. Please give a measure of industrial vacancy rates and a measure of available sublease space. The overall vacancy rate for the Indianapolis industrial market decreased from 7.9 percent fourth quarter 2007 to 7.7 percent  in the first quarter 2008 thanks to increased market activity across all sectors, as well as no new speculative construction coming online.  Meanwhile, availability for the Indianapolis industrial market rose from 8.0 percent  in the 4th quarter 2007 to 9.2 percent in the 1st quarter of 2008.  We have several large spaces available for sublease that offer lower lease rates than the competing new bulk spec warehouse available in the area. Woods Industries, 5105-5155 W. 78th St, Bldg 65 - 257,600 SF Ozburn-Hessey Logistics, 1631 Opus Dr, Bldg VI - 305,500 SF Thompson Consumer Electronics, 710 S Girls School Road - 902,852 SF Logisco, 381 Airtech Pkwy - 406,527 SF What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in the next year? The current lending market has slowed activity.  Several large build-to-suit projects have been developed, delayed and some development activity has been put off indefinitely while developers search for alternative capital sources. What industries do you expect to expand in the next year to absorb a great deal of industrial space? What areas will be affected? Third party logistics companies will see an increase in activity.  Some traditional manufacturers and retail distributors will continue to shed the overhead of staffing and real estate and use an alternative service provider for distribution services.  The low costs of transportation and real estate in Central Indiana and the ability to sign flexible lease terms will continue to attract 3PL companies and allow those already here to expand their local operations. Would you like to make any additional observations about the industrial market in your area? The Indianapolis market continues to be attractive to companies looking to locate national and regional bulk distribution warehouses.  The competitive pricing of modern bulk space and the infrastructure that Indianapolis offers with seven spokes of interstate (I-65, I-70, I-74, I-69) converging at the I-465 beltway and the new international airport along with the second largest Fed Ex hub in the United States will continue to offer low cost distribution locations in the foreseeable future.

Indianapolis Multifamily Submitted by Steve LaMotte, Jr., senior vice president with the Indianapolis office of CB Richard Ellis.  Posted on 08-06-08. What area is your expertise? Multi-housing properties (rental only) and Central Midwestern markets. However, my answers here apply only to the Indianapolis area. What trends do you see presently in multifamily development in your area? There has been a shift in development activity from the south side of Indianapolis to the north side. Approximately 3,000 units are slated for completion through 2009 along the 146th Street corridor and surrounding areas in Hamilton County. With the recent extension and opening of 146th Street, development activity has intensified along this critical corridor. Who are the active multifamily developers in your area? Currently active: Flaherty & Collins, Pedcor Investments, J.C. Hart, Welbourne Companies, Herman & Kittle Properties, Edward Rose of Indiana and Sheehan Development.  Prepared to resume development activity: Paragus, Gene B. Glick Co., and Hearthview Residential. What trends do you see presently in multifamily development in your area? Roughly two-thirds of our buyer base is coming from the East Coast. We have historically had East Coast capital but not significant levels. The heightened interest from coastal investors is due to a widely recognized rental market recovery and stable employment growth. Please name one or two significant multifamily developments in your area. What impact will these projects have on the market? Of particular interest are two urban developments in Indianapolis under construction now. This represents the first wave of ground-up urban rental construction since 2002. The Cosmopolitan will be 218 units and is being developed by Flaherty & Collins. The Waverly will be 164 units and is being developed by J.C. Hart. Rents at both communities will be in excess of $1.00 per square foot. Where is the majority of development taking place? Why is this area doing well? The majority of the planned new construction is on the north side of Indianapolis. There are over 3,100 units planned for Indianapolis’ north suburbs. The development is spurred by tremendous household growth due to strong school districts, Class A amenities, shopping and dining, existing employment concentrations and good road systems connecting the north suburbs to the city. What area do you expect to be the next big development market? Why? Hamilton County and more specifically the 146th Street corridor are experiencing tremendous growth due to the previously mentioned factors. What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing? The urban Indianapolis market is leasing very well. There is continued demand to live downtown. The north side of Indianapolis has historically outperformed the market as a whole with strong demand live among large employment concentrations and near amenity centers. Bloomington, home of Indiana University, is a supply constrained market that historically operates near full occupancy. Indiana Univ. experienced an enrollment surge of 743 last year further strengthening the market fundamentals. Please give a measure of apartment vacancy rates. The Indianapolis-area Top-50 first quarter 2008 performance was the strongest on record. Occupancy moved .6 percent to 93.2 percent. What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in the next year? Fannie Mae and Freddie Mac rate levels are virtually where they were one year ago, albeit with considerably more volatility; however, the lack of full leverage has left institutional and well capitalized private investors with the advantage. The days of full leverage sub-prime single family/condo financing are likely gone forever. This will bode well into the foreseeable future for multifamily market fundamentals. What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market? The condition of the multifamily market is tightly linked to labor market. 59,000 jobs have been created in the Indianapolis MSA since 2003, representing a 7 percent increase in the number of jobs. The Indianapolis unemployment rate as of April 2008 stands at 4.2 percent, well below the statewide and national averages of 4.6 percent and 4.8 percent, respectively. Would you like to make any additional observations about the multifamily market in your area? As many markets around the country continue to cool down, Indianapolis is gaining steam. The positive reaction by investment capital is encouraging, sustainable and reflective of many investors’ diversification strategies. Given the controlled levels of new supply, the slowdown in the for-sale market and current stable recovery, the outlook for the Indianapolis-area for the foreseeable future is bright.

Indianapolis Office Submitted by Darrin Boyd, principal/senior vice president with the Indianapolis office of Colliers Turley Martin Tucker. Posted 12/19/07. Boyd What area is your expertise? • I specialize in landlord representation, building sales and tenant representation in the Indianapolis and surrounding Central Indiana region. What trends do you see presently in office development in your area? • Medical space has developed at a very rapid pace, single-story garden office space has been prevalent and new Class A space with Interstate 465 frontage and signage has been very successful in new lease-up. Who are the active office developers in your area? • In addition to Duke Realty and Lauth Property Group, who have developed the most office product over the last 5 years, Shamrock Builders, Opus, Panattoni Development Co., J. Greg Allen Builder and Edgeworth Laskey Properties are all currently active. Please name new significant office developments in your area. What impact will these projects have on the market? • The Northwest submarket is undergoing growth with over 300,000 square feet of new construction underway which includes Duke Realty’s 154,000-square-foot Woodland Corporate Park VI and Lauth’s 151,000-square-foot Intech Three. The North/Carmel submarket currently has four multi-tenant projects underway totaling 200,000 square feet, including Panattoni’s 142,000-square-foot project at 1320 City Center Drive. Edgeworth Laskey Properties is currently building the 151,000-square-foot Lake Point Center 5 in the northeast submarket. The Keystone submarket will soon have Duke’s 120,000-square-foot River Road Two. Lauth's Meridian Corporate Plaza Three Building features 135,000 square feet. Lauth just completed construction of its 135,000-square-foot Meridian Corporate Plaza Three Building at 103rd and College. Duke has continued its successful Parkwood Crossing development originally developed east of Meridian Street on 96th (which is now fully built out) by crossing over to the west side of Meridian on 96th Street to develop land it has held for many years. Duke Realty's One West features 185,000 square feet. Duke's first building at Parkwood West, One West, is a five-story, 185,000-square-foot building with 37,000 square feet floor plates. Impressively, the building was 100 percent leased upon completion. All of these projects have been asking and consistently obtaining strong rental rates in the low $20s per square foot, which are at the top of our suburban market rents. Since these large blocks of new Class A space have been absorbing at a strong space, it is older Class A and Class B buildings that will be feeling the pressure as these tenants leasing new space leave those older buildings. Where is the majority of development taking place? Why is this area doing well? • Most of the new office development activity is located very close to Interstates 465 and 69. Ease of access for employees and visitors as well as close priximity to popular housing and school systems has driven these locations. What area do you expect to be the next big development market? Why? • Northern suburban areas like Zionsville, Fishers and Noblesville are starting to see more activity and demand than 3 to 5 years ago. This is due to more housing and retail amenities being located in these northern trade areas. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? • The North Meridian and Keystone Crossing submarkets continue to see the most demand and activity followed by the northeast and northwest submarkets. The east, west and south submarkets have substantially less demand and therefore tend to have higher vacancy rates than other parts of the city. Downtown has seen no new construction of office product with vacancies lower than in the suburbs. Please give a measure of office vacancy rates. CLICK HERE for vacancy rate chart What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in the next year? • The tightening of credit across the country will make it more difficult for most to move ahead with new or planned office developments. Developers will still see opportunities in selected areas for certain niche product types like medical projects and life sciences. I believe there will be pressure to lower interest rates from all industries and from consumers. The Fed will watch inflation very closely and is very concerned about it, but may abandon the fight over inflation and continue to lower interest rates to try and fend off a potential recession. There is the possibility of stagflation — a possibility Alan Greenspan alluded to in his latest book, “The Age of Turbulence” — when slow growth, rising unemployment and inflation all strike at the same time. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? • Economic expansion and job creation are critical to sustaining positive trends in our office market. Inflationary fears, especially with increased prices for fuel, challenge companies to maintain profit growth. Additionally, consumer spending and confidence are critical elements to the market. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in the next year to absorb a great deal of office space? What areas will be affected? • Indianapolis has a great deal of large insurance users throughout Central Indiana. When these companies expand, our market benefits. When they contract like Conseco, for example, they bring substantial vacancy and competitive space to the market. City and state uses, medical tenants, and life sciences companies are all absorbing space at this time. Would you like to make any additional observations about the office market in your area? • The Indianapolis metropolitan economy will likely outperform the national average throughout 2008. New speculative office construction will continue to come online. Due to this, we may continue to see some increases in the vacancy rate. However, Indianapolis will continue to record solid positive absorption and average asking rates may show an increase in 2008. I do not believe we will see the same amounts of absorption and activity over the last several years as the economy and Corporate America start to take a breather after 5 to 6 years of very strong growth and expansion.