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Office Market "Return to Normalcy" is Anticipated

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Market Overview

2020 is now history, but the relentless year's events will impact the economy for years to come. More than 350,000 Americans died as a direct result of COVID-19, with thousands more dying every day. The nation essentially shut down in early spring, causing the U.S. economy to shrink by an unprecedented 33% annual rate in Q2, and snapping the longest economic expansion on record. In Q3, the passage of the blockbuster CARES Act and a relaxing of restrictions helped the economy to rebound. In Q4, a raucous presidential election, another congressional relief package and a post-holidays case surge put the country in precarious economic and political conditions moving into 2021.

The office real estate market is being challenged. As expected, tenants hesitated to sign new leases amid ongoing uncertainty, causing leasing activity to dip by 37%. The market's direct vacancy rate has been on an upward trajectory since 2018 and ended the year at 16.5%. Still, strong positive absorption in the spring aided in year-end direct net absorption of 75,482 sf. Asking rents also rose 2.5% year-over-year. At this point, most landlords are not budging on rental rates as they look for other ways to incentivize tenants like free rent or flexible lease terms.


The one-two punch of the virus and civil unrest over the summer put the downtown core in a precarious position. The upward trajectory of local CBD vacancy continued - up 154 basis points from last year's rate to end 2020 at 16.5%, while asking rents were relatively flat. Despite uncertainty created by the year's events and the vacancy uptick, downtown Indianapolis has undisputed positive transformations underway. Multi-family developments are flooding the CBD, attracting more residents to downtown businesses. The traditional office footprint stretched to the east with the newly-opened Bottleworks development and more projects are on track to improve downtown's landscape.

North Suburban Markets 

The pandemic also accelerated suburban office trends. Keystone Crossing is outperforming its neighbors in terms of occupancy and rent growth. Benefiting as an infill submarket with access to a plethora of nearby amenities, its vacancy rate decreased by 4.2pp in the last three years while asking rents climbed 10.2%. Duke Realty notably relocated to the submarket at the beginning of the year when construction was completed on its 78,000-sf headquarters. The Carmel submarket is seeing major growth and led north suburban markets in year-end net absorption. Newly constructed class A office buildings in Midtown Carmel, such as the completion of the Agora over the summer, have drawn tenants from traditional office parks, while at the same time pushing asking rents for the submarket up 6.1% year-over-¬≠year. Conversely, the Meridian Corridor vacancy jumped to 17.5% while experiencing minimal annual rent growth of 1.1%. 

User Sales Activity

The two largest user purchases in the last seven years took place in 2020. Knowledge Services bought the former Marsh headquarters, and Round Room acquired a 193,000-sf facility that had been vacant since 2016. Both facilities are in Fishers, removing two of the largest user options in the market and positively affecting absorption in the I-69/Shadeland submarket.

Market Outlook

The Indianapolis office market was not as impacted by the last recession as other major office markets and recovered quickly. With vaccines now being rolled out, a "return to normalcy" is anticipated in the next 12 months. Even so, the scale of the impact on how we work and any lingering effects from the pandemic have yet to be fully established. To better understand trends and emerging adjustments, please subscribe to Colliers' COVID-19 Knowledge Leader page for resources and updates.


Office Market "Return to Normalcy" is Anticipated

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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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