HEARTLAND SNAPSHOT, AUGUST 2008

Indianapolis Multifamily Market

The overall vacancy rate in the Indianapolis multifamily sector has declined from approximately 10 percent to approximately 7 percent in the past year. The primary catalyst behind this decline is attributable to increased Class A occupancy levels, which have been driven by would-be first-time homebuyers remaining in, or returning to, the apartment market. Indianapolis’ moderate job growth, which is favorable compared to other Midwestern cities, as well as area developers’ restrained pace of development of the last few years, are expected to keep fundamentals strong through 2009.

The rental product currently being developed includes both high-end and conventional units due in part to the wide spectrum of tenants available as Indianapolis’ population continues to diversify. With increasing gas prices and the corresponding increase in the cost of doing business, developers are seeing the need to build high-amenity apartments close to employment centers. In the Indianapolis metro area, two submarkets are experiencing significant development activity in this product type: Duke Realty Corporation’s Anson project northwest of Indianapolis and the Plainfield, Indiana, submarket, just west of the new $2 billion Indianapolis International Airport expansion.

Because appropriately zoned land, or land that can be zoned multifamily, is more plentiful and still reasonably priced in the outlying submarkets, that is where the majority of the multifamily development is focused. Growth in the demand for downtown living seems to be continuing and the supply of new units is increasing accordingly.

New multifamily development underway in the suburbs include Gramercy, the Buckingham Companies’ redevelopment of the Mohawk Hills golf course and apartment complex located at 126th Street and Keystone Avenue in Carmel, Indiana. The endeavor will create more than 2,200 apartments, condominiums and town homes. Also underway is The Legacy in Carmel, which is a master-planned community located at the southwest corner of 146th Street and River Road that features single-family homes, row homes, condominiums, apartments, a continuing care retirement center, neighborhood retail and office space. The Heritage Hills multifamily community is also currently being developed near the far northwest suburb of Brownsburg, Indiana.

In the near future, there remains great potential for multifamily development in some outlying suburban areas, primarily due to continued job growth and expansion of retail and other services in the far-suburban areas. This is especially true on the far west side of the metro area, due to the expansion of the airport and related support services.

Rental rates for newer properties range from $597 for studios to $1,070 for three-bedroom units, with an average of 88 cents per square foot and a current occupancy rate of 97 percent. There were 1,400 units completed and brought online in 2007, with twice that number projected for 2008. Asking rents increased more than 2 percent as concessions burned off, pushing effective rents up even higher in most submarkets during the last half of 2007 and the first half of this year.

The Indianapolis multifamily market is experiencing solid growth in its occupancy levels and its product supply, and should continue to grow throughout the remainder of the year.

— Scott Pollom is a principal and senior vice president in Colliers Turley Martin Tucker’s regional office in Indianapolis, specializing in investment sales of income-producing properties in the Colliers Multi-Family Advisory Group.

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