14 October 2014
John Robinson, JLL Managing Director, Indianapolis@JLLNews
Article originally ran in the Indianapolis Business Journal
There’s something happening in Downtown Indianapolis that I’ve never seen in my 25 years as a commercial real estate broker here.
Tenants that have never considered a move downtown are touring buildings there and, in a few cases, companies like Cummins are even building new owner-occupied offices from the ground up. Meanwhile, firms in the burgeoning creative, media and tech sectors are looking for offices with “character,” and Class-B buildings are in higher demand.
This kind of thing doesn’t happen overnight, but based on the signs I’m seeing, the CBD will have a truly healthy and vibrant office market in 3 years — maybe sooner — and the net effect represents a true “game change” here in Indianapolis.
But why now? It’s a bit of a “chicken-or-the-egg” conundrum, but, much as they were in Chicago, Boston and San Francisco over the past decade, Millennials are the driving force. These 20- and 30-something young professionals now make up 36 percent of the U.S. workforce and will comprise 50 percent by 2020, just 5-1/2 years from now.
As has been well-chronicled by sociologists and demographers, Millennials overwhelmingly prefer to live and work in urban areas. But until recently — due to a shortage of downtown housing and necessary amenities — that’s been a difficult proposition here in Indy.
Now, though, with the Great Recession fully in the rearview mirror, residential developers have gotten off the sidelines and now have more than 3,200 new condominiums and apartments in 18 new developments under construction downtown according to Indianapolis Downtown, Inc.
Meanwhile, both Marsh and Whole Foods are opening downtown grocery stores. Trendy new chef-driven restaurants (not just chains) and retail boutiques are sprouting in abundance on Mass Ave., Fountain Square and elsewhere. And additions like the new bike sharing program, the BlueIndy car sharing program and the Cultural Trail, are making it easier for would-be urban dwellers to get around. A mass transit system is actually being seriously discussed!
Add those amenities to a list that also includes world-class NFL, NBA and minor league baseball stadiums, the Indianapolis Zoo, high-end hotels like the JW Marriott and the Conrad Hilton and, suddenly, you have a downtown area rivals those in much larger cities.
Not surprisingly, as this fact is inspiring more and more young professionals to move downtown, employers large and small are beginning to follow suit.
In addition to the Cummins project, Rolls Royce recently leased more than 450,000 square feet downtown while Exact Target (which is hinting at big hiring plans after being acquired by Salesforce.com) and Angie’s List are among a variety of other companies looking to bolster their presence there.
And speaking of the Exact Target acquisition, as the
IBJ recently observed, it “pushed a reservoir of new capital into Indianapolis,” that is now fueling a start-up boom downtown. As a result, shared office providers and “incubator” spaces are also beginning to pop up.
So far, the metrics that we in the real estate industry use to track this sort of thing — namely office vacancy rates and rental rates — have only just begun to reflect this trend. For example, while vacancy in the CBD fell slightly to 17.1 percent last quarter, that still lags far behind the Keystone submarket’s 13.5 percent figure and the North Meridian/Carmel submarket’s 12.4 percent.
This is primarily because most employers lock in long-term lease agreements with their landlords and can only re-evaluate their real estate strategy every 5 to 10 years. But as more and more of those leases signed in the early 2000s begin to expire, look for a lot more touring activity in the CBD.
After all, Downtown Indianapolis is an entirely different place than it was just a decade ago … and the metamorphosis is only just beginning.
John Robinson is Managing Director of the Indianapolis office of the global commercial real estate services firm JLL. He is a member of Midwest Real Estate News magazine’s Commercial Real Estate Hall of Fame and a former IBJ “40 Under 40” honoree.
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