The United States is currently experiencing the most consistent strong employment gains since the 90’s. According to the U.S. Bureau of Labor Statistics, Indianapolis’ total labor force set a new record at the close of 2015 coming in at 1,020,083. That total decreased somewhat in January as seasonal employment burned off, but still remains at a historically high level (1,018,017). The same can be said of total employment, which remains strong at 971,376, but not quite as strong as December (978,074), which was the second highest on record.
The office market has long been tied to employment numbers, due to the direct need for more office space as companies hire more workers. The Indianapolis unemployment rate currently sits at 4.6 percent, 30 basis points below the national average. With local hiring at an all-time high, the Indianapolis office market saw increased activity in 2015. This activity has carried over into 2016. Through the first three months of 2016, the office market has already achieved nearly 600,000 square feet of leasing velocity. This comes on the heels of 2.5 million square feet of leasing velocity in 2015.
Five deals in excess of 40,000 square feet have already been signed this year, with an additional two or three more expected to close later this year, compared to the seven deals of this size signed in 2015.
“Nearly half of the lease deals and current activity at the Precedent Office Park, year-to-date, have been due to tenant expansions,” said Tammy Faulk, JLL Indianapolis Senior Associate and Leasing Agent for the 1.2-million-square-foot office park. “Furthermore, some of these tenants have experienced such a significant increase in employment growth that they have had to nearly double their footprint.”
Further, there is approximately 2.8 million square feet of active tenant requirements currently seeking office space in Indianapolis. With this level of activity and overall office vacancy sitting at 15.9 percent as of December 2015, it’s no surprise that speculative office construction is taking place once again. Four separate office developments will add approximately 164,000 square feet of rentable space to the Indianapolis market in 2016.
Investors, both foreign and domestic, see the value-add opportunity in Indianapolis. Last year, there were a total of 25 office investment sale transactions, encompassing more than three million square feet and valuing at approximately $260 million.
This momentum has continued into this year; Indianapolis has already seen six office investment sale transactions close, totaling nearly 400,000 square feet.
This high level of office activity will continue while we remain in the good part of the economic cycle as it pertains to commercial real estate. We still have an extraordinary and accommodative monetary policy and stable prices. The private sector remains strong with potential room to grow for consumers and housing.
While risk factors are evident, they are not yet acute and the Federal Reserve has already stated that they foresee fewer and more modest rate increases in 2016 than previously forecast. As a result, the probability of recession remains low throughout 2016 with moderately increasing probability in 2017 and beyond.
Source: JLL Research, U.S. Bureau of Labor Statistics