The U.S. economy is more open than it has been since the onset of the pandemic. Local mask mandates have been revoked and vaccines for COVID-19 are widely available, but the highly contagious delta variant’s emergence stalled many employers’ push for a planned post-Labor Day return to the office. While employers evaluate their required footprint amid hybrid work, subleases are still impacting the market – albeit on a lesser level. Following the national trend, sublease availability decreased in 21Q3 for the first time since 20Q1. After a sluggish 21Q1, leasing activity in the Indianapolis office market picked up by more than 50%. Negative absorption still increased overall vacancy, but at a slower pace, and vacancy rates remain far below their peak following the Great Financial Crisis.
The downtown Indianapolis office market posted positive direct net absorption in 21Q2 for the first time since 2019, mostly as a result of the newly constructed Box Factory and Union 601. Both buildings are on the perimeter of the CBD and were mostly pre-leased. That momentum did not carry into 21Q3, when the downtown vacancy rate ticked up again to 18.9%. Earlier in the year, Rolls Royce announced plans to shift most of its Meridian Center employees on the south end of downtown to remote work, thus adding 200K sf of availability to the market. Large occupiers remain split on whether to shift remote, retain their footprint or a blend of both. While many downtown offices are still partially empty, experts predict the percentage of workers back in seats will continue to grow steadily by early to mid 2022.
New leasing activity surged in 21Q3 three times the amount from 21Q1. Suburban office leasing accounted for 83% of YTD activity. Not included in these statistics are user purchases, which made up three of the five largest user transactions in 21Q3. Occupiers moving into newly purchased or constructed properties continue to offset the increasing activity levels by adding to vacancy in traditional, multi tenant properties. The completion of the new, high profile headquarters for Zotec Partners along the Meridian Corridor and the company’s subsequent consolidation led to another bump in vacancy for that submarket. The Meridian Corridor had already been steadily losing tenants to new construction in the growing midtown Carmel submarket and ended 3Q21 with a 21.6% class A direct vacancy rate. Overall, class A north suburban rents, while flat from 2Q21, are still up 3.3% year over year.