MARKET SNAPSHOT: Indianapolis Rental Market on the Rise; Only Sales are Involuntary

By Erika Schnitzer, Managing Editor

Indianapolis—The rental market in Indianapolis is on its way to a recovery, according to George Tikijian, principal broker of Tikijian Associates.

“Even though the jobs picture has only marginally improved, the rental market seems to have improved more, and I

think that’s just because, even with a tax credit, there is greater hesitancy to buy a home with the uncertainty of the economy, so people are renting longer,” he tells MHN.

Occupancy in the city appears to have bottomed out in the first quarter of 2009, with some increases perhaps seen in the last few months. (As of the end of 2009, occupancy in the Indianapolis metro area averaged 89.3 percent, according to Tikijian Associates’ Indianapolis Rent Survey Report 2009). In 2009 and into

this year, 1,700 units will have been added to the existing inventory, but there have been no new starts thus far in 2010.

At the same time, “concessions have decreased moderately,” according to Tikijian, which he believes is due in part to the seasonality of the market. “There’s nothing dramatic on the upside, but there’s no doubt we hit the bottom several quarters ago—it’s just a slow improvement,” he notes.

The downtown area, which is hugely driven by student demand that has “offset a decline in the professional rental market,” seems to be outperforming the other submarkets. According to Tikijian

Associates’ Indiana Apartment Market Overview 2009, rent growth was actually positive throughout 2009.

On the transaction side of the market, while sales have occurred, they haven’t been voluntary, Tikijian asserts. “The only properties that are really selling are sellers that have to sell—whether it’s REO or troubled owners. That’s really all that’s for sale and there are buyers; those deals are selling.”

Consequently, pricing is difficult to measure, though Tikijian notes, “a property that would have sold at a 7 cap in 2007 today is probably going to be an 8.5 cap. You’ve got cap rates on props that are close to stabilized that are in the 8 to 9 percent range, but a lot of properties that are trading are trading at price per unit.”