Q1 2021 Indianapolis Industrial Market Report
A year has passed since the onset of the COVID-19 pandemic in the United States. The demand for e-commerce, third-party logistics providers and big-box industrial real estate in general had been growing steadily over the years, but the pandemic provided a boost to that dynamic. The Indianapolis industrial market was poised to capitalize on the changing economy. Nearly 6.5 MSF of new leases were signed in 21Q1, a record amount in one quarter and a 11.6% increase from the previous record high achieved in 20Q1. Developers continue to expand the boundaries of the traditional industrial footprint by purchasing land in virtually every direction. A record amount of new construction is set to come out of the ground in the spring to keep up with unprecedented user demand.
The Indianapolis industrial market is on its path to a third consecutive record year of new construction completions. Most buildings currently underway are being constructed on a
speculative basis, but 39% of the square footage is for build to suit projects or has already been pre leased. An additional 35 speculative projects totaling 14.2 MSF are set to break ground in 21Q2, including four buildings larger than 1.0 MSF. The new construction is growingly focused in burgeoning industrial parks that were much less active prior to the new wave. The availability of greenfield development is drawing developers to areas like Mount Comfort, southern Johnson County and Monrovia. These locations account for 30%, 20% and 16% respectively of the upcoming speculative developments.
New leasing activity reached a record high level of 19.0 MSF in 2020. That momentum continued in 21Q1, due in a large part to the sheer size of footprint that occupiers are requiring. Four tenants signed leases for speculative buildings larger than 500,000 sf. Most notably, Walmart leased the 1.0 MSF facility known as Crossroads Logistics Center and will take occupancy in 21Q3. This is in addition to the retail giant’s 2.2 MSF fulfillment center currently under construction in Hancock County, which will be Walmart’s largest such operation in the U.S. At the end of 2020, there were 13 availabilities larger than 500,000 sf (six built and seven under construction). At the end of 21Q1, there were only nine (five built with four under construction). However, leases are pending on six of them, leaving only three options to large occupiers. A new wave of construction is set to break ground as developers try to keep up with the surge in demand.
Despite all the uncertainty surrounding COVID 19 and its effect on loca l industry, the flex market in Indianapolis achieved record high occupancy and rental rates in 21Q1. In the last five years, the total flex market vacancy rate has fallen from 11.5% to 5.3%. During that same timeframe, asking rental rates increased by 27%. The trends are more pronounced in the two submarkets with the largest flex footprint: Southwest (home to Park Fletcher) and Northwest (home to Park 100). The Southwest submarket experienced a 12.3pp drop in the vacancy rate (17.0% to 4.7%) and a 49% increase in rents ($4.49 to $6.67). The Northwest submarket experienced a 11.5 pp drop in the vacancy rate (18.0% to 6.5%) and a 33% increase in rents ($6.22 to $8.26).