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Sep. 27, 2012

MARKET SNAPSHOT: Weak Demand for Lower-Tier Product Leads to Stagnant Vacancies in Indianapolis

By Philip Shea, Associate Editor

Source: Hendricks and Partners

Although payrolls are gradually expanding following layoffs in May and June, the picture for multifamily in Indianapolis remains somewhat mixed. Hendricks & Partners reports that the vacancy rate ticked down only 20 basis points, from 5.9 percent to 5.7 percent, over the past year—a slight improvement but not on par with the pace of recovery in other markets.

The local jobless rate fell 80 basis points to 7.8 percent over the last 12 months, this compared to a 50 basis point drop the preceding year. According to Hendricks & Partners, the industry posting the largest gains in employment continues to be the health and services sector, which grew 3.4 percent in 2011. Administration and educational services also had marked expansions.

While some areas of the metro have seen substantial reductions in vacancy since Q2 2011, the downtown area and parts of Boone County witnessed slight upticks due to reduced demand for Class B/C product. The City East submarket was the most affected by this trend, with overall vacancy climbing 360 basis points to 9.1 percent. Meanwhile, vacancy in the central downtown submarket rose 30 basis points to 4.3 percent.

In resonance with this trend, plans for new construction are beginning to shrink. After more than 1,000 completions throughout 2011, developers this year are only expected to add around 300 units to the metro’s inventory. Additionally, permit issuance fell from 1,545 units last year to 720 units for 2012.

Source: Hendricks and Partners

Yet as supply growth decelerates and demand remains mixed, rents are expected to advance by year’s end, with overall annual growth expected to reach 2.7 percent. Hendricks & Partners notes that asking rents rose by 1.1 percent in the second quarter of 2012 to $710 per month, this on top of a 0.9 percent gain in the first quarter.

The North/Northwest Marion County submarket saw the greatest increase in the last quarter, with asking rents increasing 1.3 percent to $723 per month. This submarket also posted a 2.4 percent increase over the last 12 months.

The most expensive submarket continues to be the downtown area, with average rent coming in at $892 per month. However, this level of rent was matched in the second quarter by the Hamilton County submarket, with cities like Carmel and Fishers continuing to be popular among local renters.

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