Q1 2019 Indianapolis Industrial Market Report

Download research report

Industrial Vacancy Reaches Another Record Low

 

Market Overview

The U.S. economy was full steam ahead in the first quarter of 2019. Despite signs of a global economic slowdown, the U.S. GDP expanded by 3.2%, marking the best start to the year since 2015. However, economists expect growth to slow, as much of the economic expansion can be accredited to companies restocking their inventories from the holiday season and high government spending. The job market remains one of the strongest in history. The national unemployment rate ended Q1 2019 at 3.8%, the lowest March figure in the last 50 years.

The Indianapolis MSA unemployment rate remains below the national average, ending the quarter at 3.5%. The largest year-­over-year job gains were in manufacturing and construction industries, which both directly affect industrial real estate.

The Indianapolis industrial market vacancy rate reached another record low of 4.1% at the end of Q1 2019, boosted by strong net absorption of 1.6 MSF and minimal speculative construction completions. New leasing momentum to start the year is also strong. Nearly 5.0 MSF of new leases were signed in the first quarter, up 43.6% from leasing activity in Q1 2018.

 

Modern Bulk 

Positive net absorption and limited new speculative vacancy pushed the modern bulk vacancy rate down to 7.3% in Q1 2019. Developers hope to capitalize on the booming tenant demand and have 7.8 MSF under construction, which is nearly double the amount compared to last year at this time. The Northwest submarket is a hotbed for speculative buildings, accounting for 61% of product under construction. The demand for 150,000-sf to 300,000-sf users is high, and asking rents have grown 19% year-over-year in this size range.

 

Traditional Distribution 

Traditional distribution buildings, which are generally older with lower clear heights than modern bulk buildings, saw vacancy drop from 7.3% to 5.7%. That was the largest year-over-year drop in vacancy among all product types. The high user demand for this space was most prominent in the East and Northwest submarkets, which have the largest traditional distribution supply. Traditional distribution building in these submarkets are nearly fully occupied, ending Q1 2019 at 2.3% and 1.3% vacancy respectively. Asking rental rates are up 11.6% year-over-year. the largest increase market wide.

 

Light Industrial/Flex 

Strong economic conditions and high business confidence are helping small business and expanding companies to flood flex spaces. The vacancy rate for flex product has fallen to another record low of 5.8% in Q1 2019. For the first time on record, the East submarket flex market is in single digits after dropping by 340 bps in a year. Rental rates jumped by 12.1% in Park 100 and by 9.8% in Park Fletcher, the two largest flex parks. 

 

Market Outlook 

The total direct vacancy rate for the Indianapolis industrial market has been reluctant to rise. Demand has been strong enough to fill the influx of speculative construction, but this year will be a true test of the market's strength, when more than 8 MSF of new construction will be delivered for a third consecutive year. Even so, with high tenant demand and another 5.9 MSF of positive net absorption already scheduled to take place throughout 2019, the Indianapolis industrial market is poised for another record year. 


Market Research Website Icons_Industrial

Q1 2019 Indianapolis Industrial Market Report

Download Report