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Industrial Market Still Strong Amid Pandemic

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Q3 2020 Indianapolis Industrial Market Report

Market Overview

The U.S. is facing a tremendous challenge, the scale of which is unprecedented in recent history. By the end of Q3 20, nearly 210,000 people had died from complications of COVID-19. The CARES Act package and a relaxing of state and local restrictions helped the economy to rebound in 03 20 after an abysmal Q2 20, but uncertainty looms large. With no new federal relief package likely, an ongoing high-stakes presidential election, and a resurgence of virus cases moving into the fall, the likelihood of a stabilized economy is low. Despite all these pressing macroeconomic challenges, the Indianapolis industrial market finished Q3 20 in a relatively strong position.

New year-to-date (YTD) leasing activity reached 13.7 MSF by the end of Q3 20 and is likely to surpass the record level set in 2019. More than 9.5 MSF of new construction projects were completed YTD, including 5.1 MSF in Q3 20. The projects were primarily developed on a speculative basis and hit the market vacant, which caused the market vacancy rate to jump to 5.5%. An additional 10.9 MSF is under construction moving into the end of the year, yet developers are still bullish, with new construction projects on track through next spring. 

 

Modern Bulk

Modern bulk net absorption levels are below where they were in 2019, but new leasing activity is at record high levels. The supply of speculative construction is creating opportunities for the Indianapolis metro market to draw a variety of users needing space to accommodate immediate demand. The burgeoning e-commerce and 3PL sectors, which made up 22% and 36% of YTD occupier activity respectively, are leasing these buildings at rapid clips. Nearly three-quarters of transactions signed YTD in 2020 were for new-to-market or expanding operations, boding well for future activity and the ability of new speculative projects to be absorbed.

 

 

Traditional and Mid-Sized Distribution

Traditional warehouse and mid-sized distribution availability remains especially tight. Outside of the manufacturing sector, which is primarily owner/occupant. vacancy for non-modern bulk warehouse maintains the market's lowest rate at 4.1%. The volume of investment sales activity through Q3 2020 was concentrated primarily in single-tenant net lease investments and mid-sized distribution buildings. Conversely, user sales activity is at very low levels as a result of minimal supply.

 

Office Service/Flex 

While COVID-19 and its effects on the economy could hurt small business operations and their ability to pay rent, the flex market maintained an incredibly strong position in Q3 2020. Flex product occupancy ended the quarter at 94.2%, a minor quarterly decrease of 40 basis points. The increase in vacancy can primarily be attributed to negative absorption events triggered by occupiers directly affected by COVID-19 dynamics. including densely built-out office/flex users. struggling fitness facilities and underutilized back-office and healthcare operations. Still, flex product vacancy is at near-record low levels after steadily decreasing over the past decade.

 

 

Market Outlook 

The extent, length and severity of this pandemic is unknown and continues to evolve at a rapid pace. The scale of the impact and its timing varies between locations. To better understand trends and emerging adjustments. please subscribe to Colliers' COVID-19 Knowledge Leader page for resources and updates.

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Industrial Market Still Strong Amid Pandemic

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