MARKET SNAPSHOT: Indianapolis

By Erika Schnitzer, Associate Editor Indianapolis—The apartment market in Indianapolis grew in 2008, according to Tikijian Associates’ annual Indiana Apartment Market Overview. Occupancy increased from 90.1 percent in 2007 to 90.8 percent in 2008, despite the delivery of 1,000 new units. These figures, however, do not take into consideration the fourth quarter of 2008. “The Indiana economy held up better than other Midwestern economies until December, outperforming Ohio, Illinois and Michigan when it came to jobs, but that’s no longer the case,” George Tikijian, principal broker of Tikijian Associates, notes.Average rents in each submarket increased, with rent growth for the entire metro area at 2.2 percent. The Downtown area had the highest rent growth—4.8 percent year-over-year. Class A properties had the highest occupancy, at 93.5 percent, and led in rent growth across classes, at 3.7 percent in 2008. Tikijian says that rent and occupancy growth in the city is due to the fact that Indianapolis is “the center of commerce for the state and has a more diversified employee base” than elsewhere in Indiana.These gains can be attributed to the number of home foreclosures, tightening credit for new homebuyers and—until recently—continuing job growth. Additionally, “the condo market and the shadow condo market do not have much of an impact here,” asserts Tikijian. The Indiana Apartment Market Overview also looked at “same store rent growth,” which is what Tikijian calls “rent growth in properties that do not include the impact of new properties.” The 20-year period between 1988 and 2008 showed a 2.8 percent increase, while the 10-year period of 1998-2008 showed a 1.5 percent increase and the 5-year period of 2003-2008 showed a 1.1 percent increase. The year-over-year rent growth from 2007 to 2008 was 2.2 percent.The 2008 occupancy rate has not been seen since 2001, but the firm is forecasting a decrease in occupancy in 2009, to 89.8 percent, with delivery of an estimated 2,500 new apartments and a decreased demand for housing. The economic slowdown and increase in job losses will also contribute to a reduction in occupancy and rents.In terms of new construction, Indianapolis—following the trend of the entire state of Indiana—has seen a decline in total residential building permits. However, the proportion of multifamily to total permits has increased year-over-year, from 9 percent of the total in 2007 to 32 percent in 2008.Sales activity has slowed and will continue to do so “because it’s hard to get your hands around the financing values and asset values,” acknowledges Tikijian. He says that even properties that are performing well may face financial difficulties due to the challenges of refinancing in today’s market.