Research

The Indianapolis industrial
real estate market
is heating up

Here’s what sellers, buyers and tenants can expect

June 20, 2019

The first half of 2019 saw many transactions of investment-grade industrial real estate in Indianapolis; it’s an interesting time for several reasons:

  • Blackstone announced the acquisition of industrial real estate assets held by GLP at a history-making $18.7 billion.
  • Developers continue to churn out new buildings both on a speculative and build-to-suit basis with 259 million square feet currently under construction in the United States.
  • Demand isn’t slowing down—a whopping 600 million square feet of active requirements across the country are up almost 40% compared to last year.  

So, if the market is so great, why sell?  The obvious answer is price. Simple supply and demand fundamentals dictate that rents are up at the same time cap rates are down. This leads to favorable pricing for nearly every would-be seller. In fact, Indianapolis is breaking previous barriers on per-square-foot (p.s.f.) pricing with trades at and above $70 p.s.f.

Another explanation is the natural cycle of equity which tends to have a shelf life at the asset/portfolio level. Consider the current industrial real estate “boom” that started six to seven years ago—the timing is also a common hold period for investors, and reasonable to speculate that product will hit the market accordingly. Fortunately, most investors intend to recycle the proceeds back into real estate which will lead to more land acquisition, speculative development and purchases to “trade up” in quality.

An active market yields opportunity for sellers, buyers and tenants

Looking more closely at Indianapolis, combining what has sold, what is being sold and what is currently on the market to be sold, results in transaction volumes nearly doubling all activity in 2018. And, there’s something for everyone with package sizes ranging from below 500,000 to over 2.5 million square feet. A variety of sellers are working the market, and they’re all household names such as Duke Realty, Clarion Partners, VanTrust Real Estate, The Opus Group and Browning Real Estate. 

These trends have implications for every party involved:

  • For sellers: Pricing is as high as it’s ever been; take advantage before there’s an imminent change in the real estate cycle.
  • For buyers: For the past few years, there has been more money chasing real estate than opportunities to purchase; now is the time to enter the market. Focus on product that is filled, or will soon fill, with lease terms beyond four to five years. This should account for any near-term road bumps the economy may experience.
  • For tenants: The most practical implication may be an increase in property taxes which is most often passed through to tenants. However, in the long term, a greater diversity of landlords in the market may prove to be a good thing. You won’t have to worry about a monopoly of industrial real estate ownership any time soon!

The bottom line is there’s a huge spike in investment activity as both a natural and an overall positive trend for everyone. It’ll be exciting to look back at the end of this year to see how it all played out.

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