The performance of an asset class often hinges on the strength of the central business district, and in Indianapolis’ office market, that influence is clear-though current trends are less than encouraging.
During the first quarter, net absorption was negative at -87,300 square feet, a turnaround from the positive 52,700 square feet posted in the previous three months, a market report from Colliers shows.
Additionally, vacancy ticked up by 30 basis points to 19.5 percent. Particularly, the CBD hit a record high of 24.1 percent — continuing on its struggles since the pandemic.
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"There is now 1.5 MSF more vacant space on the market than in 20Q1 – a 79% increase since COVID-19 disrupted the way we work," Colliers explained.
"The changing dynamic is negatively impacting the core CBD, forcing some office towers into receivership and leading others to sell at discounted values, while new mixed-use developments in non-traditional areas for office product have been gaining headlines and tenants."
Meanwhile, some positive developments have persisted since the beginning of the year. Rents inched up to $22.73, compared with $22.56 per square foot FSG in the previous three months. In further context, Colliers noted that tenants were willing to pay a premium for spaces that were 25 to 30 percent smaller than normal.
Also, no new supply entered the market after 57,900 square feet came about in the fourth quarter.
While Colliers did not provide data for total leases or volume for the first quarter, the report noted that Krieg DeVault LLP commanded the biggest deal thanks to its 36,480-square-foot renewal in the CBD. Additionally, the same tenant recorded the second-largest lease of the quarter, for a separate property in the Meridian Corridor submarket, where it took nearly 27,000 square feet of space. Indy Vineyard Church was third with its 20,000 square feet deal in Castleton.
The top sale involved Avenue Partners LLC, which traded its CBD Class B 36,000-square-foot property to Purdue Research Foundation. The price was not listed.
"Non-traditional office users and investors accounted for several of the largest transactions, keeping in line with 2023-2024 trends," Colliers added.
In Indianapolis' office sector, investors will want to look out for a few trends, according to the CRE firm. This includes how the economy responds to fears of inflation caused by tariffs, the impact of hybrid/remote work on office traffic and the downsizing of federal office space.
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