Customer Service and IT Jobs Boost Market
The U.S. economy grew for its 105th consecutive month in March 2018. Despite concerns surrounding financial market volatility and threats of a potential trade war, economic expansion kept unemployment at 4.1% for another quarter. The overall employment market, while slowing in job growth, still added 589,000 national jobs and 6,200 local jobs to office-using industries. Indiana's unemployment rate ended Q1 '18 at 3.2%, which is down from 4.7% at the end of 2016 and marks the lowest rate since 2000.
The local office market vacancy rate ended Q1 '18 at 15.7%, which is 0.3pp lower than at the end of 2017 and the lowest rate since Q1 '17. Positive direct net absorption in both CBD and suburban markets boosted total occupancy, and asking rental rates posted the highest year-over-year percentage increase on record for the second consecutive quarter.
The downtown Indianapolis office market reached another landmark in this economic cycle by achieving the lowest vacancy rate since 2009 and surpassing all other submarkets in year-over-year rent growth. In-building expansions at The Marott Center and the Guaranty Building by HomeAdvisor and Cheetah Digital respectively contributed to positive year-to-date direct net absorption of 58,292 sf. New leasing activity statistics were lifted by ANGI HomeServices lnc.'s lease of four full floors in the newly renovated 130 East. Repositioning of under-performing assets into hotels and multi-family is also aiding a strong and competitive CBD market.
North Suburban Markets
New information technology and customer service jobs contributed directly to the 113,244 sf of positive direct net absorption in the suburbs in Q1 '18. The largest expansion, a 106,477-sf lease by Geico, helped to backfill a portion of the hole left by the downsizing of Technicolor in Carmel. The insurance giant's $16 million expansion is set to add 1,500 IT and customer service jobs by the end of 2022. Similar commitments by ThyssenKrupp in Fishers, Sallie Mae in Woodfield Crossing, and Liberty Mutual in Parkwood pushed the direct vacancy rate for the suburbs down since the end of 2017. Asking rents continued their upward trajectory along the northern I-465 corridor, and massive new owner/occupant and mixed-use construction projects are in the pipeline, making for a vibrant suburban market in the coming quarters.
Three transactions made up the majority of the first quarter's activity. Chicago-based Hearn Co. sold BMO Plaza to Redico less than two years after its original acquisition. The Miami-based buyer inherited downtown's sixth tallest building with a boosted occupancy following significant upgrades to the lobby and amenity space. On the north side, M&J Wilkow entered the local market with its purchase of Two & Three Meridian Plaza, while Tempus Realty Partners doubled down on the Northwest submarket by acquiring College Park Plaza less than a year after purchasing One College Park.
Ground-up construction and building investments will play a more active role throughout 2018. Rental rates should continue to grow as owners upgrade and invest to meet tenant desires.