HEARTLAND SNAPSHOT, MAY 2008

Indianapolis Retail Market

Duke Realty Corporation recently completed the 254,000-square-foot West Carmel Marketplace in Indianapolis.

Retail development in Indianapolis is currently driven by the REITs based in the city, including Simon Property Group, the largest shopping center owner in the country, Duke Realty Corporation, one of the nation’s largest diversified real estate companies, and Kite Realty Group Trust.

Following a citywide trend toward the redevelopment and conversion of malls into lifestyle centers, Simon Property Group is redeveloping major portions of two of its malls, Castleton Square and Greenwood Park Mall, which will also add several new retailers to the Indianapolis market. Simon has also announced a 150,000-square-foot, second-floor addition to the west side of the 554,000-square-foot Fashion Mall, located at Keystone at the Crossing. The redevelopment is being completed in conjunction with the conversion of the mall’s former Parisian store to a Nordstrom, which will become the retailer’s second Indianapolis location. The former Parisian store at Circle Center Mall in downtown has now been filled by Chicago-based Carson Pirie Scott, which is making its initial foray into the Indianapolis market.

One of Simon’s new developments, the 950,000-square-foot Hamilton Town Center, is set to open this spring at 146th Street and Interstate 69 in Noblesville, Indiana, which is part of the thriving Hamilton County submarket. Hamilton County is the fastest growing and wealthiest county in Indiana, and one of the fastest-growing in the nation. The northern areas already have the lowest vacancies in the market, with submarkets such as Keystone Crossing boasting rates as low as 3 percent.

Grand openings at Hamilton Town Center have begun with JC Penney already open. The shopping center is being jointly developed with another local company, Gershman Brown Crowley. It is the largest lifestyle center to-date in the region, and will further stimulate the growth of the Fishers and Noblesville areas, as well as the northeast Interstate 69 corridor into Madison County.

This northern submarket is also seeing activity from Duke Realty, which just completed West Carmel Marketplace, a 254,000-square-foot power center that includes Kohl’s, The Home Depot, Best Buy, Home Goods, Marshall’s and Office Max. In the northwest corridor, the developer is also building The Marketplace at Anson in Boone County as part of its 1,700-acre Anson mixed-use community that also includes residential, commercial and industrial areas. The Marketplace will be anchored by a 192,000-square-foot Meijer and Lowe’s Home Improvement Warehouse. Anson is expected to spur a lot of development along the Interstate 65 corridor.

As the western part of Carmel and neighboring Zionsville continue to be built out, West Carmel Marketplace and the surrounding centers will help to fill the demand for retail services in this high-income community. The Marketplace at Anson, on the west side of Zionsville, is serving the growth that is occurring there and in the adjacent communities of Whitestown and Lebanon. The growth to the northwest along Interstate 65 was hampered for years due to lack of utilities. With that issue resolved, we may start to see the growth in this corridor similar to what occurred during the last several years in the northeast  submarket along I-69.

Kite Realty Group Trust is redeveloping the enclosed Glendale Mall into the open-air Glendale Town Center. Located at Keystone Avenue and 62nd Street, the 550,000-square-foot center includes Kerasotes Theatre, Lowe’s, Macy’s, Staples and Target.

In Noblesville, phase I of the 323,000-square-foot Hazel Dell Crossing shopping center recently opened as part of Maefield Development’s 680-acre Noble West mixed-use project. With the $1 billion expansion of the Indianapolis International Airport nearing completion, expect the communities of Brownsburg, Avon and Plainfield in Hendricks County, to continue the growth that has led the county to become the second fastest-growing area in the state.

Other companies active in the area include Centre Properties, which recently opened the 400,000-square-foot Centre West at Lafayette Road and I-65. The center includes a Wal-Mart Supercenter and a 110,000-square-foot Garden Ridge, which is new to Indianapolis. Built on a site that had remained vacant for more than 10 years, it is a major lift to the west side retail market inside the Interstate 465 loop, which is dominated by the aging Lafayette Square Mall. Retail in the area has been on a slow decline for years, but a turnaround could be on the horizon. In January, Simon sold the 40-year-old Lafayette Square to Ashkenazy Acquisitions Corporation, which has announced a major renovation and re-tenanting of the 113-acre property.

Also proposed is Lantern Commons, a 450,000-square-foot lifestyle center located at 161st Street and US Highway 31 in Westfield, approximately 1 mile north of Simon’s existing Village Park Plaza power center and Clay Terrace Lifestyle Center which it co-owns with Lauth.

Not all growth is limited to the suburbs, though. Downtown is becoming even more of a destination for visitors, with the addition of Lucas Oil Stadium for the NFL’s Indianapolis Colts opening this fall, the expansion of the convention center and the addition of new hotels, including the recently opened Conrad and the proposed JW Marriott. Downtown also continues to see significant residential growth, which is stimulating retail and restaurant growth.

As one of the lowest cost cities for housing, Indianapolis may not be as vulnerable to the current housing crisis as other locations, and should see recovery and improved consumer confidence earlier than most. Retail leasing has slowed dramatically, bringing vacancy rates to 9.7 percent marketwide, but should be back on track as the economy starts to recover.

— Bob Horn is a senior investment advisor with Zionsville, Indiana-based Sperry Van Ness | Sycamore Commercial.

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