Q4 2022 Office Space Report: Indianapolis, IN
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Indianapolis’s office space market is home to major businesses like Allison Transmission, Salesforce, and Steak n’ Shake.
The city’s unemployment rate increased from 2.1% to 2.2% quarter-over-quarter but was still significantly less than the national average of 3.5% in Q4 2022.
For Indianapolis’ metro area, population growth has averaged approximately 1.35% over the last four years. Overall, the city remains one of the most prosperous in the country.
The office market in Indianapolis recorded its highest vacancy yet in Q4 2022.
General Area Overview & Demographics
Indianapolis is the most populous city in Indiana, with a population of 882,039 people. The racial makeup of Indianapolis is 61.6% White, 28.2% African American, 7% Hispanic or Latino, 3.4% Asian, and 0.2% Native American or Pacific Islander.
Indianapolis Median Household Income, Climate, & Attractions
Its residents have a median household income of $44,289. This is lower than the national average of $56,516. The cost of living is also 10% lower than the national average.
The majority of the population falls between ages 25 and 54. About 33% of the population is under the age of 18.
Indiana University-Purdue University Indianapolis is the city’s largest university, with around 30,000 students enrolled. The city is also home to the University of Indianapolis, Ivy Tech Community College, Butler University, and Marian University.
The Indianapolis Motor Speedway is the world’s largest spectator sporting facility, hosting the world-famous Indy 500 race each May. It also has a museum presenting a history of auto racing and the speedway.
Spring temperatures average between 45-68°F with occasional rainstorms. Summer temperatures often reach the low 80s, with high humidity. Fall brings cool air and lots of rain, while winter can get bitterly cold temperatures and occasional snowstorms.
Summary of Indianapolis Office Space Performance in Q4 2022
The overall vacancy rate for Indianapolis’s office space market was 19.4% in the fourth quarter of 2022.
Class A led vacancy with a rate as high as 21.3%. Class B followed at 19.5%, and Class C was at the lowest with 9.2%.
West, Northwest, Northeast, and Keystone submarkets all posted vacancy rates of over 20%.
Absorption brought another -58,000 square feet to the annual total in Q4, bringing the end-of-year absorption to -180,000.
While Class A had positive absorption in Q4, it’s the only product totaling negative absorption for 2022.
What are office space rents like in Indianapolis?
Average rental rates for Indianapolis office space decreased quarter-over-quarter from $21.55 per square foot in Q3 to $21.43 per square foot in Q4.
Rents were highest in Keystone’s submarket at $24.83 per square foot.
Downtown, Fishers, and North/Carmel all posted rents of about $20 per square foot.
Midtown had the lowest rent at $15.59 per square foot. Class A rents averaged $23.87.
Purchase & Leasing Activity
Q4 posted the lowest amount of space transacted in 2022, with only 180,000 square feet trading hands.
The total for all of 2022 was 2.4 million square feet in deals. Over 2 million of that space was a part of investment deals.
Most sales activity occurred in the North/Carmel and Northeast submarkets.
Companies leased a total of 1.8 million square feet of space in 2022. Over a million square feet was for Class A space, and both Downtown and North/Carmel submarkets accounted for over 400,000 square feet leased.
Notable Office Space Deals in Indianapolis in Q4 2022
There were several deals for Indianapolis’ office space properties.
- Shore Terrace MOB LLC acquired 44,000 square feet for $3.5 million.
- American Structurepoint leased 98,000 square feet.
- Old National Bank leased 45,000 square feet.
- Total Quality Logistics leased 31,000 square feet.
- Kimley-Horn and Associates leased 29,000 square feet.
These are select examples among other activity.
New Office Space Development Activity in Indianapolis in Q4 2022
A 54,000-square-foot build was delivered to the market for Eight Eleven Group. This was the only new delivery in Q4.
At the close of 2022, 183,000 square feet of office space were under construction across three properties.
Over 70% of that space has already been pre-leased.
Market Forecast for Indianapolis’ Office Space Market
In the coming years, US economic conditions may experience a variety of turbulence. Factors such as recession fears, climbing borrowing costs, and elevated inflation could damage growth in 2023.
As leases expire and businesses reassess their requirements, there may soon be an increased demand for downsized spaces as tenants adjust to shifting needs.
Economic uncertainty and rising interest rates hindered office sales growth in 2022. If conditions persist in 2023, levels will likely remain subdued overall.
Takeaways for Office Space Investors
Preleasing activity in amenity-filled, newly constructed, and renovated areas are thriving rapidly, commanding top prices.
This shows employers’ willingness to invest in delivering an excellent work environment for their employees.
Investors should consider prioritizing these spaces in the market.
Do your research and invest wisely.
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