Multifamily Construction Reaches 14-Year High in Indianapolis, Vacancy Pushes Up
- Mar 18, 2015
Indianapolis metro area’s steady employment growth will drive up apartment demand in 2015, according to a recent market forecast from Marcus & Millichap. This year, local employers are expected to increase payrolls by 2.4 percent with the addition of 23,000 jobs. This estimate outpaces last year’s increase of 2.1 percent.
Many of the newly created jobs will be located downtown, an area which is currently going through a complex revitalization process. The redevelopment of the Market Square Arena is especially significant in this part of the city, where engine manufacturer Cummins is building its new global distribution headquarters. Upon completion, the $30 million office project will house 400 employees. On another portion of the site, Flaherty & Collins Properties is developing an $81 million, 28-story, apartment high-rise with 300 units scheduled to come online at the end of the year.
Developers are also active in Hamilton and Boone counties. Marcus & Millichap data shows that in these areas, as well as in other parts of the metro, it typically costs more to rent a newly built apartment than to pay the mortgage on an existing median-priced single-family home.
Overall, multifamily deliveries in Indianapolis will continue an upward trend in 2015, with the addition of 3,000 units, a slight increase from the 2,800 apartments developers completed in 2014.
Meanwhile, the high pace of rental construction along with the strengthening housing market will push vacancy up 20 basis points this year to 7.4 percent. Last year, apartment vacancy in Indianapolis decreased 150 basis points.
This year’s higher vacancy rate will slow rent growth. Effective rents are expected to rise by 3 percent to $786 per month, following a 4.2 expansion in 2014.
As a result of the elevated deliveries and increased vacancy, Indianapolis ranks on the last spot in the firm’s 2015 National Apartment Index.
As for multifamily investment opportunities, the city’s improving economy and its vast supply of new developments will continue to attract out-of-state buyers, many of whom are especially drawn to smaller markets that offer larger returns. Investors in Indianapolis are especially interested in projects located in the downtown and Hamilton County areas.
Charts courtesy of Marcus & Millichap