HEARTLAND SNAPSHOT, MAY 2004

Indianapolis Industrial Market

Mike Lubbers, Principal, NAI Olympia Partners

The Indianapolis industrial market continues to grow despite the recent economic slowdown of 2002 and 2003, according to Mike Lubbers, a principal with Indianapolis-based NAI Olympia Partners. Although the development of small industrial product has slowed from the late 1990s and early 2000s, the development of bulk distribution properties is vibrant.

In the first quarter of this year, there was more than 2 million square feet of available bulk warehouse space available in the market. Development companies like Duke Realty, Opus North Corporation and Lauth Development, that have all benefited by having large bulk existing space ready to lease, have proven this theory quite profitable.

For the last 10 years, the focus of industrial development has been in the outlying areas of Indianapolis. Communities such as Plainfield and Brownsburg in the west, Lebanon in the northwest and Greenwood in the south, all boast successful industrial business parks. In Plainfield, the Airwest Business Park will add 1.8 million square feet of bulk warehouse space with three new properties this year. Browning Investments and Keystone Realty Trust jointly developed an 800,000-square-foot speculative facility, and Opus North Corporation developed a 425,000-square-foot speculative building in the park. Panattoni Development will build a 533,000-square-foot speculative facility, the company’s first in the market, in the park this year.

In Brownsburg, Lauth Development is building Eagle IV, a 405,597-square-foot speculative facility in its Eaglepoint Business Park. In Greenwood, Quadrangle Development has entered the market with the development of a 442,000-square-foot speculative facility located in Precedent South Business Park.

The Six Points project on Interstate 70 is a significant development that will help the area’s industrial market when it is completed in 2005, according to Lubbers. The new interchange, which will be located west of Downtown, will service Indianapolis’ new mid-field airport terminal and offer an eastside gateway for the already successful Airwest Business Park in Plainfield. “The accessibility to I-70 and the Indianapolis International Airport will surely secure the future growth of Airwest Business Park and the residual surrounding property,” Lubbers says.

Developers will continue to target bulk distribution users and logistics companies to absorb the more than 2.7 million square feet of speculative warehouse space scheduled to come online this year, according to Lubbers. “Although the bulk industrial market in Indianapolis may take care of itself, it will be important for Indianapolis to entice other types of industrial product development and absorption,” he says. The Life Sciences Initiative is a positive step in that direction because there is optimism that growth within the bioscience market will bring manufacturing opportunities to the area.

“The Life Sciences Initiative has gained tremendous momentum from the private and public sectors,” Lubbers says. Indiana boasts some of the largest names in the life sciences business, such as Eli Lilly & Company, Roche Diagnostics Corporation, Cook Group, Guidant Corporation and DowAgroSciences. The BioCrossroads initiative, which promotes life science business development in central Indiana, hopes the location of these companies will offer a leg up over the other 40 or more states and cities vying for life sciences companies.

Net absorption in the Indianapolis industrial market at year-end 2003 was more than 3 million square feet. “This is the highest absorption since 1999 and 2000 when there was absorption of more than 4 million square feet and 8 million square feet, respectively,” Lubbers says. “Modern bulk warehouse space accounted for more than 2 million square feet of space at year-end 2003.”

When vacancy rates are broken down by product type, 2 million square feet of absorption was modern bulk warehouse product, and less than 500,000 square feet was older bulk space, yet both vacancy rates hover around 10 percent.

The arrival of Case New Holland to the Lebanon Business Park — which is located 25 minutes northwest of downtown Indianapolis — was the marquee transaction last year. Case New Holland has recently occupied its new 1 million-square-foot distribution facility at the park.

“Similar to the theory that our country will never experience another great depression due to supply chain management, I believe the vacancy index for modern bulk warehousing product will remain at or around 10 percent for many years to come,” Lubbers says. “As absorption ceases, so will construction and visa versa. The cautious approach to development has proven to keep just enough product online yet not too much. As for the rest of the product types, traditional fluctuation will continue. However, due to the sheer size of the modern bulk product, this fluctuation will be overshadowed, keeping the overall vacancy rates skewed toward the modern bulk product.”

Other than the pre-described outlying industrial parks, there are three distinct areas that are commanding and will command development attention during the next several years.

The Interstate 65 corridor, which links Indianapolis to Chicago, has been severely underdeveloped. Duke Realty has acquired control of approximately 1,700 acres located minutes from the northwest leg of Interstate 465. This mixed-use park will have residential space, a town center, and retail, office and industrial space. “This investment and development will be the key link in connecting the northwest suburbs to what is considered Indianapolis proper,” Lubbers says.

The Interstate 69 corridor, which is more mature than that of the I-65 corridor, will have a similar mixed-use development. Republic Development Company’s Saxony will include residential with a town center, and retail, office and industrial space. It will be complete in several years. “Although the industrial product will be minimal, the acceptability of this location will increase, thereby spawning industrial development opportunities,” Lubbers says.

“The near northwest side of downtown has been earmarked as the bioscience corridor,” Lubbers adds. “Even though this area is presently scattered with antiquated, older industrial product, the nearby location of the Indiana University Medical School & Hospital should ensure the success of this transformation.”

“This year is shaping up to be a successful recovery year for the Indianapolis industrial market,” Lubbers says. “Indianapolis has an enormous geographical advantage for distributors because it is located within a 1,000-mile radius of most major U.S. cities. Central Indiana will thrive and prosper as a distribution hub, which will lead to positive growth in this market segment for years to come. Developers have shown an affinity for central Indiana, and they are committed and poised for growth. This commitment is illustrated by the 5.5 million square feet of space that is on the drawing board for bulk warehouse development in 2004.”

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