MARKET SNAPSHOT: Indianapolis Remains Stable; REITs Disappear from Metro

Indianapolis—The Indianapolis economy has fared better than most other Midwestern cities, primarily due to positive job growth.

The unemployment rate for Indianapolis-Carmel, as of November 2010, was 8.7 percent, according to the Bureau of Labor Statistics. While this is 0.2 percent higher than the month prior, it remains lower than the national average, which was 9.8 percent during the same period.

Indianapolis is largely driven by a pro-business stance, points out George Tikijian III, CCIM, principal broker at Tikijian Associates. Governor Mitch Daniels, he adds, “has been active and aggressive in going after new business,” which, compounded with the low cost of doing business, has been met with some success, including an expansion in the biotech and high-tech automotive industries.

Indianapolis occupancy increased from 89.3 percent in 2009 to 90.8 percent in 2010, the same occupancy as in 2008, according to Tikijian Associates’ 2010 Indiana Apartment Market Overview. All submarkets saw an increase in occupancy, except for the East Metro, which fell from 85.3 percent to 84.8 percent. During the same period, the North Metro experienced 92.7 percent occupancy.

At the same time, Class A experienced 93.2 percent occupancy, a 0.8 percent increase from the previous year.

“It’s the same story as it’s been for 30 to 40 years,” Tikijian tells MHN. “The strongest market is downtown, and that is largely due to it being a small market that’s had a fair amount of growth. We have a university that’s had strong enrollment. Historically it was a commuter campus, but the last 5-10 years there’s more and more students … wanting to live near campus.”

Average asking rents declined about 0.4 percent in 2010, with the Downtown area leading the market in rent growth, at 3.3 percent. According to Tikijian’s report, all other markets experienced rent declines, with the largest drop, 1.4 percent, seen in the East Metro market.

The Indianapolis market absorbed 4,200 units in 2010, well above normal, and Tikijian notes that the market expects this trend to continue for the next few years.

While the firm reports 2,089 expected starts for 2011, Tikijian expects some of them to get “pushed back further than 2011.” Multifamily completions in the MSA are estimated at 2,050 units for 2011, down 20 percent from 2010. Most new development of market-rate properties is occurring in either Hamilton and Boone Counties or downtown Indianapolis.

The number of transactions fell in 2010, with 4,100 units totaling $190 million trading in the first 10 months of 2010.

“There’s always a consistent amount of product on the market in Indianapolis,” says Tikijian. “What has traded has been in two categories: the stabilized, well-located Class B, B+, A- properties [that] have traded in the 6.75-7.5 cap range, and then distressed properties … that [are] all over the board from $5,000 to $30,000 [per unit].”

The interest in these assets has mainly been from regional players, observes Tikijian. “I heard at [the NMHC conference this week] that there are some markets where there is a fair amount of new construction gearing up. That’s where REITs are, but we’re not a REIT market and private developers are still having a challenging time [getting things started].

“Most of the institutional money is not even thinking about the Midwest,” he adds, “so the Midwest will remain a private investor market.” REITs are gone from Indianapolis, he tells MHN, pointing out that there were 16 REIT owners in 1998, and the last REIT to remain in the area is closing its last deal within the next month.

On the bright side, the metro’s diversified economy will help the market to remain stable.  Because the metro never experienced the enormous rise in pricing, it didn’t fall as much as other metros.