3. 2013 Market Report
Indianapolis, Indiana January 2013
Dear Colleagues,
This annual report marks the beginning of 2013, a year that will be significant not only politically but
also economically, as businesses and consumers collectively look to Washington, D.C., to provide the
clarity needed to move forward with confidence. Despite slowing growth abroad and lingering public
policy uncertainties at home, 2012 was characterized by improving business conditions, offering hope
that growth will continue in the year ahead. Although the challenges of the past year hampered growth
in the latter half, Indiana’s commercial property markets proved to be remarkably resilient as every
segment of commercial real estate demonstrated strengthening fundamentals over the balance of 2012.
I am also happy to say that Cassidy Turley has had another successful year. Our office received accolades
CONTENTS as the #1 commercial real estate brokerage and the #1 commercial property management firm as
ranked by the Indianapolis Business Journal 2013 Book of Lists. The Indiana Chamber of Commerce
named our office as one of the Best Places to Work in the state for the sixth consecutive year.
Economic Overview 4
Cassidy Turley is also enjoying success across the country in our third year as a unified firm. We are
Industrial Market 10 attracting top talent and expanding into new markets. Our property management portfolio has grown to
455 million square feet, and our leasing portfolio stands at 400 million square feet. Our strategy has been
Office Market 18 one of smart growth—aiming to get better, not just bigger.
Retail Market 26 Our progress would not be possible without the support and loyalty of our clients. For this I thank you, and I
hope that our annual report—covering the regional and national economy and its impact on the Indianapolis
Capital Markets 30 commercial real estate market—will prove useful for your business. In these challenging economic times,
keen insight and clarity is even more critical to your success, and we stand ready to assist and guide you.
Land Market 36
Associates 38
Sincerely,
Industrial Appendix
Office Appendix
Retail Appendix
Jeffrey L. Henry, SIOR
Regional Managing Principal
www.cassidyturley.com | 3
4. 2013 Market Report
Economic Overview
How Do You Cope With Sluggish Growth, The main force supporting growth is
High Debt and Uncertainty? Provide Clarity accommodative monetary policy with the
aim of aiding a financial system that still is
The recovery continues, but it has
not functioning efficiently. In many countries
weakened. In the U.S. and other advanced
banks remain weak and their positions
economies, growth is now too low to make
are made worse by a stagnating economy,
a substantial dent in unemployment, and
causing many borrowers to struggle to obtain
in major emerging markets growth that had
needed financing, thereby diminishing
been strong as 2012 opened has abated. For
demand for commercial real estate. Central
the most part the challenges are familiar. In
banks around the globe continue not only
the U.S., EU and Japan, fiscal consolidation
to maintain low rates but also to experiment
to address high debt-to-GDP ratios and a
with programs aimed at decreasing rates
ECONOMY weakened financial system are slowing the
in particular markets, at helping particular
At a glance economic recovery. While this consolidation
categories of borrowers, at helping financial
is needed for these economies to get
U.S. Economy Forecast intermediaries in general and at increasing
(Annual Metrics) 2011 2012 (e) 2013 (f) onto a sustainable fiscal track, there is no
the money supply by flooding financial
GDP 1.8% 1.9% 2.5% question that it is weighing on demand. This
institutions with capital in an effort to
Job Growth (ths.) 1,503 1,732 2,000 presents two challenges. First, it requires
promote increased lending and liquidity—a
Unemployment Rate 9.0% 8.1% 7.9% fiscal consolidation that will, at a minimum,
process known as quantitative easing (QE).
CPI 3.1% 2.2% 3.0% cause the ratio to level off in the not-too-
CCI 58 66 79 distant future. Second, it has to occur In the United States, the hope of the Federal
ISM 55.2 52.5 57.0 in a way that will keep these economies Reserve is that, by flooding the financial
e: Estimate; f: Forecast Source: Cassidy Turley Research operating at as close to full employment as system with even more credit, banks will
possible—a process known as rebalancing.
Leading Index for Indiana (LII) not only have enough to safeguard against
Leading Index for Indiana (LII)
Needless to say, rebalancing is an often potential losses in Europe and the U.S. but
106
104
slow and always arduous task that clouds will also be emboldened to begin lending.
102
100 the market with economic uncertainty. It is worth noting that the U.S. economy
98
Compounding this problem dramatically is has responded very well to past doses of
96
94 pervasive public policy uncertainty, primarily quantitative easing. QE1 was launched in
92
from Washington, D.C., that has caused November 2008: equity markets surged,
90
even the most bullish to recoil and has over the course of the program the Dow
Source: Indiana Business Research Center caused both businesses and consumers to rose from 8,000 to 11,000, job growth
collectively shift into “wait and see” mode. accelerated, investment sales picked up
IN CRE Fundamentals Slowly Improving and spreads tightened. However, it is also
There is no easy way out of this predicament,
Multifamily but one thing is clear: clarity is critical. A lack clear that the more times QE is used the
Industrial
of it will continue to stall both the corporate less effective it becomes. QE1 had a big
Office impact, QE2 had a smaller impact and QE3
and consumer sector drivers of the recovery
Retail
and weaken demand for commercial real looks to be even smaller. In mid-December
estate in the process. Thankfully both the the Federal Reserve attempted to provide
economy and the property markets are not clarity and spur the market by extending
where they were just a year ago—underlying bond buying and setting a threshold for
Downturn Recovery Upturn Mature Downturn
Weak Demand
High Vacancy
Improving Demand
Falling Vacancy
Strong Demand
Tight Vacancy
Historic Demand,
Vacancy, Rents
fundamentals for both have strengthened the first time that it will use to signal its
Source: Cassidy Turley Research
considerably—but if we are to see any interest rate plans. According to Federal
improvement in 2013, clarity is critical. Reserve Chairman Ben Bernanke, the Fed
4 | We know The State of Real Estate ®
5. January 2013
intends to keep short-term interest rates over 1 percent. Late in 2011, the European
pinned near zero, as they have been since Central Bank (ECB) unveiled its Long- Overview / MARKET TRACKER
December 2008, until the unemployment Term Refinancing Operation (LTRO) plan
rate dips to 6.5 percent or lower or to provide over $1 trillion in cheap, short- GDP Growth Rate
inflation forecasts rise to 2.5 percent. term loans to eurozone partners whose (% Change, SAAR) Source: U.S. Bureau of Economic Analysis (BEA), Cassidy Turley Research
GDP Growth Rate (% Change, SAAR)
economies were dragging down the EU as 6.0
It’s not just U.S. policy that will affect the 4.0
15-Year Average
a whole. Europe enjoyed a brief period of 2.0
commercial real estate recovery going 0.0
economic stabilization and the U.S. economy -2.0 Forecast
forward. Much of its fate depends on policy
expanded by 4 percent. But as the LTRO -4.0
-6.0
decisions made in Europe. If we have
program faded away in March of 2012, -8.0
learned anything over the last two years, -10.0
European sovereign debt yields began to rise
it is that when the euro crisis worsens, the
yet again and the U.S. economic recovery Source: U.S. Bureau of Economic Analysis (BEA),
U.S. recovery slows and vice versa. When Cassidy Turley Research
faded yet again. There are other factors
the calendar flipped to 2011, there was
that influenced U.S. economic growth, of U.S. Employment and
speculation that the EU would not bail out Labor Force Participation
course, but the ongoing saga in Europe Source: U.S. Bureau of Labor Statistics, Moody’s Analytics
U.S. Employment & Labor Force Participation
Portugal, raising the odds that a disorderly
continues to weigh heavily on the minds of 600
400
66.0%
65.5%
break-up of the eurozone would occur.
U.S. business leaders and lenders alike. 200 65.0%
During that period, the U.S. economy -200
0 64.5%
64.0%
slowed to a crawl with GDP of just 0.8 It’s not by chance that the U.S. economy -400
-600
Labor Force
63.5%
63.0%
Participation Rate
percent in the first quarter of 2011. Then, in reacts to every European market jolt; there -800
-1000
62.5%
62.0%
the summer of 2011, there was talk about are significant economic and financial ties
Greece being forced to leave the eurozone; between these two massive economies.
Source: U.S. Bureau of Economic Analysis (BEA),
the growth rate in the U.S. slowed to just Nearly 14 percent of U.S. GDP is attributed Moody’s Analytics
Small Business Hiring:
Net % Firms Expecting to Hire
Economic Forecast for Advanced and Emerging Economies
Source: National Federation of Independent Business (NFIB)
Small Business Hiring: Net % Firms Expecting to Hire
21 117
18 114
15 111
Geography Actual Estimate Forecast 12
9
108
2008 2009 2010 2011 2012 2013 6
105
102
3
99
World Output 2.8% -0.6% 5.1% 3.8% 3.3% 3.6% 0
96
-3
-6 93
Advanced Economies 0.1% -3.5% 3.0% 1.6% 1.3% 1.5% -9 90
United States -0.3% -3.1% 2.4% 1.8% 2.2% 2.1% Small Business Optimism Index Net % of Small Businesses Expecting to Hire
Euro Area 0.4% -4.4% 2.0% 1.4% -0.4% 0.2% Source: National Federation of Independent Businesses (NFIB)
Germany 0.8% -5.1% 4.0% 3.1% 0.9% 0.9%
S&P 500 Forecasts
France -0.1% -3.1% 1.7% 1.7% 0.1% 0.4%
Year-End 2013
Italy -1.2% -5.5% 1.8% 0.4% -2.3% -0.7% S&P 500 Forecasts, Year End 2013
1650
S&P 500 in
Spain 0.9% -3.7% -0.3% 0.4% -1.5% -1.3% 1600 last truly healthy year
for property markets
Japan -1.0% -5.5% 4.5% -0.8% 2.2% 1.2% 1550 (year-end 2006)
1500
Emerging/Developing Economies 6.1% 2.7% 7.4% 6.2% 5.3% 5.6%
1450
China 9.6% 9.2% 10.4% 9.2% 7.8% 8.2%
1400
India 6.9% 5.9% 10.1% 6.8% 4.9% 6.0% 1350
Brazil 5.2% -0.3% 7.5% 2.7% 1.5% 4.0% Source: Cassidy Turley Research
Source: International Monetary Fund, World Economic Outlook, October 2012
www.cassidyturley.com | 5
6. 2013 Market Report
Economic Overview
to exports, and about 20 percent of that U.S. rallied. Perhaps we are entering into Reserve pumps in, banks are pumping out
goes to the EU. Thus, if the eurozone another period of relative peace in the just $0.80. That’s very little bang for the
experiences a recessionary retrenchment, eurozone but it is likely to be short-lived. buck. Fortunately, the money multiplier has
demand for U.S.-made goods and services The eurozone economies have significant started to increase more recently, so lending
will take a severe hit—dropping U.S. GDP rebalancing to do and that will take years. is loosening but it needs to keep going.
growth anywhere from 0.5 percent to 1 That said, the ECB has given the markets This is critically important because the U.S.
percent. The financial ties are even more every reason to believe that it will do economy and commercial real estate will
alarming. U.S. banks’ gross exposure to the whatever it takes to prevent a major collapse fall far short of potential until this improves,
entire eurozone is $729 billion, nearly 60 of the euro. Our baseline assumption is largely because loans make the commercial
percent of tier 1 capital (i.e., common stock that the eurozone will experience some real estate world go ’round. When loans
and cash reserves). In sum, U.S. banks mild growth in 2013 (GDP<1%). are flowing, capital markets are quadruple
have little choice but to safeguard against a the volume we are witnessing today.
scenario where things go terribly wrong in In this way, the euro crisis continues to
Europe. From a real estate perspective, it is suppress lending conditions and economic The good news is that we know investors
also worth recognizing that at this stage in growth in the U.S. The money multiplier once again wish to borrow to buy commercial
the cycle, European sovereign debt yields effect, an important metric to watch, real estate. The Fed Senior Loan Survey
and CMBS spreads largely move in tandem. continues to sit at an all-time low. It shows that 30 percent of all banks—small,
If conditions get riskier in Europe, investors measures the amount of money a bank can medium and large—are reporting strong
will flee from riskier real estate assets and create from increases in money created demand for loans to purchase commercial
prices will fall for everything other than core by the central bank. Historically, when real estate. That level of reported demand
building assets. Recently the European the Federal Reserve increases the money per debt is actually stronger than what we
Central Bank (ECB) sent a strong signal supply by $1, banks would correspondingly saw in the last commercial real estate boom
that it is “willing to do whatever it takes to increase lending into the economy by $1 and slightly lower than the tech boom of the
preserve the euro.” Equity markets in the to $3. Currently, for every $1 the Federal late 1990s. There is also strong demand for
Economic Forecast: Economic Forecast:
Indiana Statewide Industries Select Indiana Cities, % change 2012–13
Statewide Industry 2013 2014 Cities GDP Jobs Income
Mining 5.5% 5.9% Indianapolis 2.0% 0.9% 3.0%
Construction 4.5% 2.1% Fort Wayne 1.5% 0.9% 3.1%
Manufacturing (Durable goods) -4.4% -5.0% Evansville 1.2% 1.0% 3.1%
Manufacturing (Nondurable goods) 2.5% 2.4% South Bend 0.8% 0.4% 2.8%
Retail -0.5% -1.0% Bloomington 1.1% 1.2% 3.4%
Utilities 4.5% 4.7% Gary 1.3% 0.4% 3.7%
Wholesale 1.1% 0.9% Muncie 0.6% 1.2% 4.2%
Transportation -1.5% -2.9% Lafayette 1.1% 2.0% 3.3%
Health care 4.7% 4.7% Terre Haute 0.6% 0.1% 3.3%
Information services -0.8% -1.3% Anderson 0.4% -0.2% 3.0%
Finance, insurance and real estate -1.3% -2.1% Elkhart 0.8% 1.3% 3.5%
Unemployment rate 7.8% 7.2% Kokomo 0.6% 1.0% 3.5%
Source: Bureau of Economic Analysis and CBER calculations Source: Moody’s Analytics, IUBRC
6 | We know The State of Real Estate ®
7. January 2012
January 2013
corporate loans, small business loans and simplest terms, the deficit is the amount of
home mortgages. Demand for debt is not money the government must borrow to make Overview / Market Tracker
the problem. We also know banks have $1.8 ends meet when revenues are less than
trillion sitting idle—five times the norm—so expenses. In the fiscal year that ended in Manufacturing:
capitalization is not the problem. Banks not September, the U.S. was $1.1 trillion short. ISM Purchasing Managers’ Index
Source: Institute for Supply Management
Manufacturing: ISM Purchasing Managers’ Index
having the clarity needed to feel comfortable If you’re an optimist, that’s better than the 70
Above 50 = Expansion
60
enough to lend is the problem. Why are year before. If you’re a pessimist, that’s 50
banks reluctant to loosen the purse strings? historically high. If you’re a realist, that simply 40
30
Basel III, Dodd-Frank, lawsuits related to isn’t sustainable. But the political discourse 20
the LIBOR scandal, $1.7 trillion in CRE in our country isn’t framed by optimists 10
0
debt that is set to mature by 2016, the euro and pessimists; it’s framed by Democrats
crisis, slowing global growth and uncertainty and Republicans who both believe they
Source: Institute for Supply Management
surrounding fiscal policy in the U.S. are all are realists. The good news is that there is
causing banks to safeguard against all of general consensus on both sides of the aisle Consumer Confidence
that the federal deficit needs to be reduced (1985=100, SA)
these things that could still go terribly wrong. Consumer Confidence (1985=100, SA)
As a result, financial institutions have been substantially—by $3 to 4 trillion over the 160
140
reducing their loan volume for commercial next 10 years—and there is a realization that 120
100
real estate since 2009, and they want changes to tax policy, federal spending and 80
entitlement restructuring must all play a part.
60
nothing to do with construction loans in 40
particular, down 58 percent from their peak. The bad news is that there is widespread 20
0
disagreement on exactly what part each
The financial challenges facing the banking should play and an unwillingness to confront
Source: Cassidy Turley Research
industry are nothing compared to the fiscal these challenges by either political party.
challenges surrounding the U.S. deficit. In As a result, the U.S. political arena features United States:
CRE Improvement CRE Improvement
Source: Cassidy Turley Research
United States:
18%
16%
Economic Forecast: 14%
Indianapolis Metropolitan Area 12%
Vacancy Rate
10%
8%
Indianapolis Indicator 2013 2014 2015 2016 6%
Gross metro product ($ billions) $81.6 $84.1 $86.8 $89.3 4%
2%
change (year-over-year) 2.0% 3.1% 3.1% 2.9% 0%
U.S. Office U.S. Industrial U.S. Apartment U.S. Retail
Current, Q4 12 Peak
Total employment (000) 900.8 920.5 947.8 971.9
Source: Cassidy Turley Research
change (year-over-year) 0.8% 2.2% 3.0% 2.5%
Unemployment rate 7.6% 6.7% 5.8% 5.3% Indiana:
CRE Improvement CRE Improvement
Source: Cassidy Turley Research
Indiana:
Personal income growth 4.1% 6.8% 7.1% 6.0% 16%
14%
Population (000) 1,828.3 1,851.7 1,874.4 1,898.2
12%
Single-family permits 5,908 11,217 13,375 13,147 10%
Vacancy Rate
8%
Multifamily permits 2,103 2,441 2,458 2,311
6%
Existing-home price ($ thousands) $127.6 $132.7 $140.2 $146.2 4%
2%
Mortgage originations ($ millions) 6,241 4,098 4,315 4,718 0%
IN Office IN Industrial IN Apartment IN Retail
Net migration (000) 11.7 10.3 9.6 10.7 Current, Q4 12 Peak
Source: Cassidy Turley Research
Source: Moody’s Analytics
www.cassidyturley.com | 7
8. 2012 Market Report
Economic Overview
much of the blame for pervasive public the aging Hoosier baby boomers will be fiscal policy will likely mean growth will
policy uncertainty that has helped foster on the demographic makeup of Indiana. decelerate in the fourth quarter of 2012
the anemic recovery in the first place. The Indianapolis MSA—which comprises and possibly the first quarter of 2013, the
more than one-quarter of the state’s total U.S. economy is poised to emerge on much
An examination of voting patterns during
population—will see the number of people stronger footing in the second half of 2013
the past 40 years by the Congressional
aged 65 and older nearly double in the with gains in output and employment.
Recorder shows that political parties have
next 20 years. But Indianapolis is not alone;
steadily diverged ideologically to the point No single factor is more important for
four other sizeable Indiana metros will see
that they are further apart now than at any commercial real estate than employment.
increases of more than 80 percent in the
time since the end of Reconstruction. An Here again there is strength. Since January
number of their senior citizens. This dramatic
exhaustive examination is thought-provoking 2011 the U.S. economy has created on
growth isn’t limited to the metros, however;
but isn’t necessary to see the damaging average 172,000 jobs per month, which
Indiana’s non-metro areas will see growth in
effects. Simply watching the fiscal cliff is right on par with the job growth we
excess of 50 percent over the same period.
drama unfold on television makes clear the experienced during the real estate boom
depths of both the political divide and the This means we are on the cusp of seeing years of 2004-2006. Every single major
inability of policymakers to reach even the a demographic-driven evolution in the sector in this economy, other than the
most basic of compromises. This might drivers and management of medical government, is creating jobs. It’s also worth
provide a bit of theatrical enjoyment if the real estate. Health care providers have noting that the Job Opening and Labor
stakes weren’t so high and if it wasn’t the been eager to expand into desirable
Turnover Survey (JOLTS) data published by
only mechanism by which the country can communities and are increasingly looking
the Bureau of Labor Statistics indicates that
plot a course towards much-needed fiscal at new types of commercial real estate,
job openings at firms have been consistently
sustainability. Under current policies the space that has traditionally been occupied
rising since July 2009. Currently there are
ratio of federal debt held by the public over by office and retail tenants. One change
3.7 million job openings, meaning that if we
GDP—the debt-to-GDP ratio—will rise which is already recognizable is the
took all the unemployed persons in the U.S.
rapidly over the next decade. Specifically, migration of ancillary medical services,
and provided them one of these jobs, the
federal debt held by the public is expected to such as claims services, membership
unemployment rate would be 5.8 percent.
rise from about 73 percent of GDP currently services, medical devices and supplies
Of course, the skills mismatch is a great
to about 95 percent by fiscal year 2022. and health services communications,
challenge for public policy makers, making
from their historical hospital campuses
One of the biggest challenges for the federal such a scenario impossible. Nevertheless,
to off-campus commercial space.
budget is the aging baby boomer generation, the rise in job openings highlights the fact
Support services moving off-campus
which will raise government spending on that businesses are seeing better demand,
also opens space to accommodate the
Social Security, Medicare and Medicaid. which will ultimately require more people
co-location of R&D with critical care.
Consider that in 2011 the first wave of baby and commercial space to meet that demand.
boomers turned 65, with nearly 32 million Throughout all of the political theatrics,
Americans projected to follow suit by 2030. Another sign of strength is that both
the U.S. economy has been stunningly
Since roughly half of an individual’s lifetime resilient. Real GDP in the third quarter of business and consumer balance sheets
medical expenditures occur after the age 2012 was revised upward to 3.1 percent, are in much better shape. For businesses,
of 65, this group stands to drive substantial the fastest quarterly growth of the past year. just four years after the worst shock to
gains in health care demand and spending. Help is coming from a housing recovery, the economy since the Great Depression,
In turn, they will have a tremendous strengthening job market and healthier corporate profits are stronger than ever.
impact on the management of real estate household finances that are driving gains In the third quarter, corporate earnings
assets that enable the optimal delivery in consumer confidence and spending. were $1.7 trillion, up 18.6 percent from
of health care services. New population Although the damage from Hurricane a year ago, according to the U.S. Bureau
projections highlight just how transformative Sandy and an anticipated tightening of of Economic Analysis. Unfortunately,
8 | We know The State of Real Estate ®
9. January 2012
January 2013
record corporate profits have come at thereof. Nationwide, business investment in
the expense of investment and hiring as equipment and software stalled in the third Overview / MARKET TRACKER
economic and public policy uncertainty quarter of 2012 for the first time since early
have kept businesses cautious and reluctant 2009. Amid a backdrop of uncertainty, U.S. Household Balance Sheets
to invest; however, if clarity is provided, companies are scaling back investment Look Much Better Sheets Look Much Better
Household Balance
(HH Debt Service Ratio %)
corporations are in position to make the plans at the fastest pace since the recession, 14.5
14.0
investments in people and equipment to with half of the nation’s 40 biggest publicly 13.5
13.0
meet strengthening demand. For consumers traded corporate spenders announcing plans 12.5
12.0
the household debt burden has shrunk to curtail capital expenditures in 2013. It is 11.5
11.0
considerably and household balance irrational to assume that fiscal policy will be 10.5
10.0
sheets are much stronger. Over the last anything other than a drag on U.S. economic HH Debt Service Ratio %
three years, consumers have either paid growth, at least for the next few years, but Source: Cassidy Turley Research
off or refinanced the bulk of their debt. if politicians can provide even a modicum
The household debt-service ratio—a ratio of clarity, the U.S. economy is ready to % of Banks Reporting Stronger
of debt payments to disposable income— Demand for CRE Loans
take the recovery the rest of the way. Source: Fed Senior Loan Officer Survey
% of Banks Reporting Stronger Demand for CRE Loans
looks as strong as ever. At this stage in 60 Tech boom
the recovery, the U.S. consumer has Assuming policymakers can provide a 40
RE boom
either fully deleveraged or is two-thirds of bit of clarity, the economy is actually in 20
0
pretty good shape. Encouraging signs are
1995Q4
1996Q4
1997Q4
1998Q4
1999Q4
2000Q4
2001Q4
2002Q4
2003Q4
2004Q4
2005Q4
2006Q4
2007Q4
2008Q4
2009Q4
2010Q4
2011Q4
2012Q4
the way there. Either way it suggests that -20
consumer spending will start to contribute forming in many indices, all suggesting that -40
-60
more positively to economic growth. the U.S. recovery is maturing and getting -80
stronger. Economic indicators for the final
Source: Fed. Senior Loan Offi cer Survey
Outlook
three months of 2012 looked encouraging.
There are many reasons to be encouraged In November the Conference Board’s Bank Liquidity Tremendous:
Consumer Confidence Index rose to its Cash Assets, $ Billions
that the recovery will continue and Source: U.S. Board of Governors of the Federal Reserve System
Bank Liquidity Tremendous: Cash Assets, $ billions
strengthen. Even in Europe, as difficult as highest level in five years. Consumers have $1.7 trillion
$2,000 in November
conditions are, progress is being made. never been more confident in this recovery $1,600
Sovereign debt yields have calmed, the stock than they are currently. The housing recovery $1,200
market is improving and the euro currency continues to impress. Home sales are the $800
$400
is actually appreciating. Many things could highest in five years, and home prices are $0
still go wrong, but far more things are still rising in 100 out of 132 metros tracked.
going right. In the U.S. policymakers must Suddenly housing is poised to contribute Source: U.S. Board of Governors of the Fed. Reserve System
finally agree on a credible approach to the 1 percent to GDP growth for the next few
federal budget that will reduce the long-term years, as it typically does during recovery Lending Muted:
Money Multiplier (Ratio of M0 to M1)
deficit and put the U.S. on a path towards periods. Indeed the stage is set for a real Source: Federal Reserve Bank of St. Louis
Lending Muted: Money Multiplier: Ratio of M0 to M1
3.5
fiscal sustainability. Until this is achieved, recovery to emerge. Much stronger growth 3.0
businesses will curb their investments in for 2013 is still possible; real GDP growth of 2.5
2.0
hiring and capital spending, corporate 2.5 percent to 3.0 percent can be achieved,
Ratio
1.5
strategic planning will be put on hold and the and 3 percent to 4 percent in 2014 is not 1.0
0.5
commercial real estate recovery will continue a stretch given the latest trends in the U.S. 0.0
to disappoint. If there is one area where economy. Against this backdrop, demand for
the dampening effect of uncertainty may be all commercial space is poised to improve Source: Federal Reserve Bank of St. Louis
seen, it is corporate investments, or the lack in every segment. All we need is clarity.
www.cassidyturley.com | 9
10. 2013 Market Report
Industrial Market
If You Build It, They Will Come Logistics Port at Kingsbury that will connect
Kingsbury Industrial Park in LaPorte to a
The industrial sector has demonstrated
main CSX rail line. This project promises to
tremendous resiliency in the face of slowing
greatly enhance accessibility for the region
global growth and pervasive public policy and serve as a major draw for distribution
uncertainty both in Europe and in the United and advanced manufacturing enterprises.
States. Nationally, the second half of 2012 Meanwhile, at home in Central Indiana,
was one of the strongest in this recovery and industrial vacancy remains at the lowest
reflects the continuation of a robust uptrend levels seen in decades, and this is spurring
that began in 2011. In fact, the national additional development of all stripes.
industrial sector has now leased up more
space than it shed during the recession— By any measure, the amount of speculative
INDIANAPOLIS INDUSTRIAL MARKET
an important milestone and one that the development currently underway in India-
At a glance
Indiana industrial market eclipsed in 2010. napolis is big. With more than 3.2 million
4Q12 4Q11 square feet under construction, Indianapolis
Statewide, markets such as South Bend,
Inventory SF 240,497,547 238,456,331 is leading the Midwest in the amount of
Mishawaka, Evansville, Fort Wayne and In-
Vacant SF 7,992,340 10,303,229 dianapolis all continue to see positive growth new product it will bring online in 2013 to
Vacancy Rate 3.3% 4.3% and declines in vacancy for multi-tenanted meet eager tenant demand. The sheer size
Occupied SF 232,505,207 228,153,102 industrial space. Despite the headwinds of of development at 3.2 million square feet
Absorption (Qtr) 1,598,736 1,893,113 sluggish growth and continued deleveraging stands alone as a big number, but when
Absorption (YTD) 4,353,905 6,219,894 at home and abroad, the fundamentals of considering that 622,000 square feet of it
the industrial sector are surprisingly robust. was already leased, the level of speculative
Notable projects from around the state and development occurring in Chicago (1.7 MSF),
Multi-Tenant Vacancy Rate
Vacancy Rate historically strong demand metrics and Cincinnati (900,000 SF) and Minneapolis
10%
development in Indianapolis are helping to (350,000 SF) and the lack of development
Historical Average
8% provide a positive outlook for the industrial in other peer markets such as St. Louis,
6% market in 2013. Columbus and Louisville, the level of
4%
development is even more impressive.
A slew of projects taking place across the Projects currently underway include a
2%
state offer a clear sign that demand is poised 795,000-square-foot speculative build-
0%
2005 2006 2007 2008 2009 2010 2011 2012 to spread to secondary markets in the ing located in AmeriPlex by Atlanta-based
quarters ahead. In Southeast Indiana trucks Industrial Developments International; a
Multi-Tenant Net Absorption (YTD) are moving, product is being stocked and 771,000-square-foot bulk warehouse in
Net Absorption (YTD)
people are being hired at Amazon’s new GreenParke in Plainfield by Chicago-based
8,000
Square Feet (‘000s)
one-million-square-foot fulfillment center at Verus Partners; a 622,000-square-foot
6,000 the River Ridge Commerce Center in Jeffer- bulk facility on Ronald Reagan Parkway by
4,000
sonville, Ind. The impact of this new addition ProLogis and locally-based Browning Invest-
to the industrial market will not be limited ments that was leased prior to completion; a
2,000
to River Ridge or Jeffersonville; expect to 450,000-square-foot building on Perry Road
0 see related industries that support Amazon in Plainfield by Kansas City-based VanTrust
2006 2007 2008 2009 2010 2011 2012
begin to occupy space across the Southern Real Estate; and a 600,000-square-foot
Indiana landscape. In Northwest Indiana rail warehouse, expandable to more than a mil-
is being extended at the 800-acre Inland lion square feet, in AllPoints at Anson via a
10 | We know The State of Real Estate ®
11. January 2012
January 2013
joint venture by Browning Investments and space requirements necessary to meet the
Industrial / MARKET TRACKER
Duke Realty. needs of a growing logistics and distribu-
tion segment. This in turn is helping the
With so much speculative development Downtown Submarket:
Indianapolis industrial market outshine
underway, the logical question becomes, Absorption and Vacancy Change
other peer markets—and the nation as a Downtown Submarket: Absorption and Vacancy Change
“Is there enough demand to absorb it all?” whole—by posting nine consecutive quar-
150 6%
Thousands
5%
Yes, definitely. Although vacancy rates will ters of occupancy growth. Multi-tenanted
100
4%
50
rise closer to their historical average in the vacancy rates have fallen to a histori- 0
3%
2%
short term when the space comes online, in cally low 3.3 percent, and vacancy rates (50) 1%
the long run this amount of space is exactly among multi-tenant modern bulk facilities
(100) 0%
what the market needs to continue to be are tracking even lower at 1.7 percent. Net Absoprtion (YTD) Vacancy (%)
driven by distribution. Because Indianapolis The tight market stems in part to a ban- Source: Cassidy Turley Research
is the most centrally-located major city in the ner leasing year in 2008, when the market
country—75 percent of all businesses in the absorbed over 7 million square feet at the East Submarket:
U.S. and Canadian populations live within a same time that speculative construction came Absorption and Vacancy Change
East Submarket: Absorption and Vacancy Change
day-and-a-half truck drive and more inter- to an abrupt halt, and the 2011 leasing 700 8%
Thousands
600 7%
state highways intersect Indianapolis than by giant online retailer Amazon of nearly 2 500 6%
5%
any other region—the area has always been million square feet, thereby depleting the
400
300
4%
3%
a major player in logistics. The impact on the market of a good portion of available modern
200 2%
100 1%
industrial CRE market is clear: it is driven by bulk space. Since that time, net absorption 0 0%
distribution. Indianapolis has emerged as for all product types has averaged 3 mil- Net Absoprtion (YTD) Vacancy (%)
one of the most sought-after markets for dis- lion square feet a year and overall vacancy Source: Cassidy Turley Research
tribution centers in the country, and this in has continued to decline. An additional
turn is having a tremendous impact on both beacon of strength is that 2012 was also Northeast Submarket:
the demand we are seeing in the industrial a year with bustling build-to-suit activity, a Absorption and Vacancy Change Change
Northeast Submarket: Absorption and Vacancy
market and the development of much-need- further indication of corporate confidence
1,400 8%
Thousands
1,200 7%
ed product to meet that demand. Central in the underlying market conditions. Some
1,000
800
6%
5%
Indiana’s strength rests on the region’s of the notable corporations moving forward
600
400
4%
3%
200 2%
strength in three key areas: infrastructure, include SMC Pneumatics, with a build-to- 0 1%
(200) 0%
workforce and an accommodating public suit addition of 600,000 square feet in the
policy for business. Logistics and distribution Northeast submarket, and Regal Beloit, with Net Absoprtion (YTD) Vacancy (%)
firms have already discovered that India- a 376,000-square-foot build-to-suit develop- Source: Cassidy Turley Research
napolis offers distinct geographic advantages ment in the Southwest submarket.
for supply chain hubs, a highly skilled and North Submarket:
While current levels of development to support Absorption and Vacancy Change
reliable workforce and some of the lowest North Submarket: Absorption and Vacancy Change
business costs in the Midwest, and they are logistics and distribution are spectacular, 400 12%
Thousands
300
10%
parlaying their investment in Indianapolis something just as important is playing out 200
100 8%
0
into bottom-line profits. in the manufacturing sector, namely the (100)
6%
(200) 4%
rebound in Hoosier manufacturing. Since (300)
2%
(400)
This shows no sign of stopping, and demand the recovery began in mid-2009, Indiana (500) 0%
metrics confirm that Indianapolis is among factories have added more than 60,000 Net Absoprtion (YTD) Vacancy (%)
the best-performing industrial markets workers, workers who need commercial Source: Cassidy Turley Research
in the nation, due in part to having the space to produce goods. In 2012 Central
www.cassidyturley.com | 11
12. 2013 Market Report
Industrial Market
Indiana alone saw close to 560,000 square Amid this backdrop the Indianapolis in- Northeast (+357,927 SF), North (+176,181
feet of manufacturing space absorbed and dustrial market completed another strong SF), Downtown (+115,782 SF) and South-
witnessed the manufacturing vacancy rate year in 2012 and is poised to continue that east (+60,644 SF). As a result, the overall
decline by 80 basis points (bps). The impor- trend in 2013. Leasing velocity tracked at industrial multi-tenant vacancy rate fell by
tance of manufacturing isn’t limited to the an impressive clip throughout the past year a full percentage point over the balance
with more than 4.2 million square feet of of 2012, ending the year at 3.3 percent,
property markets; it is also the largest sector
new leasing and 6.3 million square feet of markedly lower than the Midwest industrial
of Indiana’s economy in terms of output,
renewals and expansions. Net absorption average of 9 percent. Variations in submar-
which last year totaled more than $278
for the fourth quarter registered 1,598,736 ket vacancy for all product types included
billion. In terms of percentages, manufactur-
square feet, placing net growth for the year the South (0.9%), Southeast (1.6%), North
ing comprises over 25 percent of the state’s at 4,353,905 square feet. Submarket varia- (1.8%), West (2.3%), Southwest (3.1%),
GDP, a much larger share than any other tions in year-to-date net absorption included Downtown (3.4%), East (4.1%), Northwest
sector. In other words, as manufacturing the Southwest (+1,074,421 SF), South (4.2%) and Northeast (4.8%). Across the
goes, so goes the Indiana economy, and (+915,664 SF), East (+601,995 SF), West market, product-type variations in vacancy
manufacturing went well in 2012. (+538,040 SF), Northwest (+513,251 SF), included transport (0.7%), modern bulk
(1.7%), maintenance (1.8%), manufacturing
(2%), medium distribution (4.4%), tradi-
Largest Signed Industrial Transactions—YTD 2012
*All square footage rounded to the nearest thousand, all transactions greater than 50,000 SF tional bulk (4.5%), office showroom (7.3%)
and flex (7.6%).
NEW LEASES
In the Downtown submarket, net absorp-
Company Location Quarter Square Footage
tion for the fourth quarter registered 60,935
Anderson Merchandisers South 1 704,000
square feet, pushing year-to-date occupancy
Hartz Pet Products Southwest 4 622,000
growth to 115,782 square feet. Downtown
Prime Distribution South 1 412,000
product types witnessing annual growth were
Undisclosed Northwest 1 380,000
medium distribution (+87,786 SF), office
Regal Beloit Southwest 2 376,000 showroom (+58,129 SF) and flex (+11,600
Ohio Farmers Northwest 1 240,000 SF). Meanwhile, the manufacturing sector,
Atkins East 1 212,000 which grew in the majority of submarkets,
Smart Warehousing Southwest 1 190,000 gave back space (-41,733 SF). Downtown
Celadon South 3 158,000 vacancy for all types currently stands at 3.4
International Paper Northwest 4 144,000
percent, down 50 bps from a year prior.
Tracked traditional bulk, maintenance and
Thermal Structures Southwest 2 141,000
transport facilities in the Downtown submar-
Fagerdala Southwest 1 120,000
ket were fully occupied, with other product
AVC Southwest 3 100,000
type variations made up of medium distribu-
FacadeTek Northwest 4 90,000
tion (0.6%), flex (1.4%), office showroom
Zenith Freight Northwest 4 90,000
(3.6%) and manufacturing (5.6%).
Schenker Northwest 4 86,000
Rolls-Royce Southwest 1 85,000
In the East, net absorption through Decem-
ber was 601,995 square feet, driven in part
Fiserv Southwest 1 76,000
by 81,702 square feet of growth occurring in
Total Square Feet 4,226,000
Source: Cassidy Turley Research
the final three months of the year. Flex prod-
12 | We know The State of Real Estate ®
