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Q2 2019 Indianapolis Office Market Report

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Office Space

Large Users Dominate Indianapolis Office Activity

Market Overview
The U.S. economy grew by 2.1% in Q2 19, marking the longest economic expansion on record. The growth was driven by a 4.3% increase in consumer spending and a 5% jump in government spending. The stock markets also reached yet another record high. Despite these records, growth was slower than previous quarters, tempered by a drop in exports and increased tensions over ongoing trade disputes with China.

Low unemployment remains a high point among economic indicators. Indiana's jobless rate was steady year-over-year and is the lowest of all neighboring states. ending Q2 19 at 3.5%, while the Indianapolis MSA boasts 3.1% unemployment.

The local office market direct vacancy rate ticked down slightly from last quarter to 15.8%. though still up from year-end 2018 due to high negative absorption in 01 19. Leasing activity is strong halfway through the year, up 8.3% from last year, and rental rates continue to rise - up 3.3% market wide.

Downtown Indianapolis office buildings continue to see rents rise at above-market paces. The 6.6% year-over-year growth puts CBD rent at $22.79 FSG, which is still below peer cities' downtown markets. Top-tier class A towers have the lowest vacancy in more than five years and highest asking rents on record for the second consecutive quarter. Rental rate increases have been driven in part by new owners investing capital and pushing rents. Vacancy was also driven lower by several tenant moves, the most notable of which was online auto-auction firm TradeRev absorbing two floors in the Century Building that were formerly occupied by Salesforce.

North Suburban Markets
North suburban vacancy rates were flat year-over-year, with large blocks of available space (including a new 85,000-sf direct vacancy in Eight Parkwood) offset by large users flooding the suburban market in Q2 19. This quarter alone, State Auto moved into 29,989 sf in Hamilton Crossing, lnktel took 21.054 sf at Keystone at the Crossing, the Pyramids drew two multi-floor users, eHealth subleased 56,276 sf at Lakefront in Keystone. More high-profile users are in the market and expected to lease up additional large blocks of space this year. The high demand is allowing rents to grow, with popular submarkets like I-69/Shadeland, Meridian Corridor, and Keystone Crossing experiencing year-over-year asking rental rate growth ranging from 4.9% to 5.7%.

Investment Market
Investment sales volume through mid-2019 outpaced early 2018 levels, even as varying interest rates leave investors wary. In Indianapolis, the most significant sale was Equus' disposition of the premier Keystone at the Crossing office park to ORA Advisors and M&J Wilkow. The joint venture, which entered the Indianapolis office market in 2018, now controls 11.5% of the suburban market's class A office product.

Market Outlook
A notable emerging trend is the influx of developers eyeing 30,000 to 60,000-sf new buildings. Most require preleasing and are tied to nearby new developments, such as the Yard and Nickel Plate District in Fishers. These mini-urban markets in suburbia are helping to raise rents across products and offer users unique opportunities outside of a traditional office park.


Q2 2019 Indianapolis Office Market Report

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James Winkler

Director | Market Research


James Winkler leads the firm’s Market Research department, providing in-depth building and transactional statistics, trending, market and submarket statistical analysis, and general market conditions. He is responsible for overall quality control of the data services and serves as Colliers Indianapolis local expert toward regional and national research capabilities. He uses a proactive approach to conduct market research by creating and leveraging reciprocal relationships with a broad spectrum of key industry contacts. James and his team physically survey the market with regular on-site visits and walk-throughs.  James continually taps into his can-do attitude and inquisitive style to strengthen his knowledge of the commercial real estate industry and its relevant drivers. For his superior work ethic and dedication to the Market Research department, James received the firm’s “Peak Performance” staff award for 2013.

Previously, James worked with a public relations and communications firm based in Indianapolis.

In his spare time James enjoys live music and exploring the wide range of activities available in Indianapolis.

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