HEARTLAND SNAPSHOT, DECEMBER 2004

Indianapolis Multifamily Market

There continues to be a concentration of multifamily development in the southern quadrant of Indianapolis’ metropolitan area, including the Interstate 65 Corridor, State Road 37 Corridor and State Road 135 Corridor, according to George Tikijian III, senior vice president at CB Richard Ellis’ Indianapolis office. In addition to the southern portion, there is continuing development in the northern area, particularly Noblesville and Carmel. “The majority of development is taking place in the northern suburbs due to the availability of zoned land, growth in population, good income demographics and ongoing commercial development,” Tikijian says. Much of the development is occurring in the counties surrounding Indianapolis, however, these areas are well served by major roadways.

Another trend in development is the increasing number of tax-credit and tax-exempt bond financed projects. “This shift away from conventional development is largely due to a soft rental market and flat or declining rent levels that make upscale, conventional projects and the high rents needed difficult to pencil,” he says. “Tax-credit development is typically at lower rent levels, with low or no developer equity requirements.”

While Indianapolis is experiencing continued development in the multifamily market, there are no new developers to the area. “In fact, there are presently no active national developers (non-local),” Tikijian says. The most active local developers are Pedcor, JC Hart Co., Flaherty & Collins, Herman & Kittle and Buckingham Companies.

A combination of upscale conventional properties and tax-credit properties with a higher percentage of 30 percent, 40 percent and 50 percent of AMI set-aside units are the types of projects currently being developed in Indianapolis. The average rent for the entire Indianapolis metro area is $616, with the rental rate being $0.70 per square foot. The overall average vacancy rate for the Indianapolis metropolitan area is 12.2 percent, and the median vacancy rate is 9.8 percent. In the Indianapolis metropolitan area there are a total of 125,000 units, with 2,000 units added in 2004 and an additional 1,300 units expected in 2005.

Downtown Indianapolis is an area that developers should watch because it is the strongest submarket, both in terms of occupancy rates and rents. Hamilton County also should be watched for continued growth in multifamily development due to the strong population and household growth that has occurred and is projected to continue during the next 5 to 10 years.

“There will be continued new development in the market until interest rates increase or lenders tighten their underwriting so that developers are not able to borrow an adequate amount in a construction loan to support the costs of development,” Tikijian says. “Also, looking out a few years, the total number of new units in the pipeline will decline — boding well for the rental market in 2006 and beyond.”

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