Annual Market Report (2013)

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Annual Market Report (2013)

  1. 1. 2013Annual MarketReportIndianapolis, Indiana
  2. 2. 2 | We know The State of Real Estate ®
  3. 3. 2013 Market Report Indianapolis, Indiana January 2013 Dear Colleagues, This annual report marks the beginning of 2013, a year that will be significant not only politically but also economically, as businesses and consumers collectively look to Washington, D.C., to provide the clarity needed to move forward with confidence. Despite slowing growth abroad and lingering public policy uncertainties at home, 2012 was characterized by improving business conditions, offering hope that growth will continue in the year ahead. Although the challenges of the past year hampered growth in the latter half, Indiana’s commercial property markets proved to be remarkably resilient as every segment of commercial real estate demonstrated strengthening fundamentals over the balance of 2012. I am also happy to say that Cassidy Turley has had another successful year. Our office received accoladesCONTENTS as the #1 commercial real estate brokerage and the #1 commercial property management firm as ranked by the Indianapolis Business Journal 2013 Book of Lists. The Indiana Chamber of Commerce named our office as one of the Best Places to Work in the state for the sixth consecutive year.Economic Overview 4 Cassidy Turley is also enjoying success across the country in our third year as a unified firm. We areIndustrial Market 10 attracting top talent and expanding into new markets. Our property management portfolio has grown to 455 million square feet, and our leasing portfolio stands at 400 million square feet. Our strategy has beenOffice Market 18 one of smart growth—aiming to get better, not just bigger.Retail Market 26 Our progress would not be possible without the support and loyalty of our clients. For this I thank you, and I hope that our annual report—covering the regional and national economy and its impact on the IndianapolisCapital Markets 30 commercial real estate market—will prove useful for your business. In these challenging economic times, keen insight and clarity is even more critical to your success, and we stand ready to assist and guide you.Land Market 36Associates 38 Sincerely,Industrial AppendixOffice AppendixRetail Appendix Jeffrey L. Henry, SIOR Regional Managing Principal www.cassidyturley.com | 3
  4. 4. 2013 Market Report Economic Overview How Do You Cope With Sluggish Growth, The main force supporting growth is High Debt and Uncertainty? Provide Clarity accommodative monetary policy with the aim of aiding a financial system that still is The recovery continues, but it has not functioning efficiently. In many countries weakened. In the U.S. and other advanced banks remain weak and their positions economies, growth is now too low to make are made worse by a stagnating economy, a substantial dent in unemployment, and causing many borrowers to struggle to obtain in major emerging markets growth that had needed financing, thereby diminishing been strong as 2012 opened has abated. For demand for commercial real estate. Central the most part the challenges are familiar. In banks around the globe continue not only the U.S., EU and Japan, fiscal consolidation to maintain low rates but also to experiment to address high debt-to-GDP ratios and a with programs aimed at decreasing rates ECONOMY weakened financial system are slowing the in particular markets, at helping particular At a glance economic recovery. While this consolidation categories of borrowers, at helping financial is needed for these economies to get U.S. Economy Forecast intermediaries in general and at increasing (Annual Metrics) 2011 2012 (e) 2013 (f) onto a sustainable fiscal track, there is no the money supply by flooding financial GDP 1.8% 1.9% 2.5% question that it is weighing on demand. This institutions with capital in an effort to Job Growth (ths.) 1,503 1,732 2,000 presents two challenges. First, it requires promote increased lending and liquidity—a Unemployment Rate 9.0% 8.1% 7.9% fiscal consolidation that will, at a minimum, process known as quantitative easing (QE). CPI 3.1% 2.2% 3.0% cause the ratio to level off in the not-too- CCI 58 66 79 distant future. Second, it has to occur In the United States, the hope of the Federal ISM 55.2 52.5 57.0 in a way that will keep these economies Reserve is that, by flooding the financial e: Estimate; f: Forecast Source: Cassidy Turley Research operating at as close to full employment as system with even more credit, banks will possible—a process known as rebalancing. Leading Index for Indiana (LII) not only have enough to safeguard against Leading Index for Indiana (LII) Needless to say, rebalancing is an often potential losses in Europe and the U.S. but 106 104 slow and always arduous task that clouds will also be emboldened to begin lending. 102 100 the market with economic uncertainty. It is worth noting that the U.S. economy 98 Compounding this problem dramatically is has responded very well to past doses of 96 94 pervasive public policy uncertainty, primarily quantitative easing. QE1 was launched in 92 from Washington, D.C., that has caused November 2008: equity markets surged, 90 even the most bullish to recoil and has over the course of the program the Dow Source: Indiana Business Research Center caused both businesses and consumers to rose from 8,000 to 11,000, job growth collectively shift into “wait and see” mode. accelerated, investment sales picked up IN CRE Fundamentals Slowly Improving and spreads tightened. However, it is also There is no easy way out of this predicament, Multifamily but one thing is clear: clarity is critical. A lack clear that the more times QE is used the Industrial of it will continue to stall both the corporate less effective it becomes. QE1 had a big Office impact, QE2 had a smaller impact and QE3 and consumer sector drivers of the recovery Retail and weaken demand for commercial real looks to be even smaller. In mid-December estate in the process. Thankfully both the the Federal Reserve attempted to provide economy and the property markets are not clarity and spur the market by extending where they were just a year ago—underlying bond buying and setting a threshold for Downturn Recovery Upturn Mature Downturn Weak Demand High Vacancy Improving Demand Falling Vacancy Strong Demand Tight Vacancy Historic Demand, Vacancy, Rents fundamentals for both have strengthened the first time that it will use to signal its Source: Cassidy Turley Research considerably—but if we are to see any interest rate plans. According to Federal improvement in 2013, clarity is critical. Reserve Chairman Ben Bernanke, the Fed4 | We know The State of Real Estate ®
  5. 5. January 2013intends to keep short-term interest rates over 1 percent. Late in 2011, the Europeanpinned near zero, as they have been since Central Bank (ECB) unveiled its Long- Overview / MARKET TRACKERDecember 2008, until the unemployment Term Refinancing Operation (LTRO) planrate dips to 6.5 percent or lower or to provide over $1 trillion in cheap, short- GDP Growth Rateinflation forecasts rise to 2.5 percent. term loans to eurozone partners whose (% Change, SAAR) Source: U.S. Bureau of Economic Analysis (BEA), Cassidy Turley Research GDP Growth Rate (% Change, SAAR) economies were dragging down the EU as 6.0It’s not just U.S. policy that will affect the 4.0 15-Year Average a whole. Europe enjoyed a brief period of 2.0commercial real estate recovery going 0.0 economic stabilization and the U.S. economy -2.0 Forecastforward. Much of its fate depends on policy expanded by 4 percent. But as the LTRO -4.0 -6.0decisions made in Europe. If we have program faded away in March of 2012, -8.0learned anything over the last two years, -10.0 European sovereign debt yields began to riseit is that when the euro crisis worsens, the yet again and the U.S. economic recovery Source: U.S. Bureau of Economic Analysis (BEA),U.S. recovery slows and vice versa. When Cassidy Turley Research faded yet again. There are other factorsthe calendar flipped to 2011, there was that influenced U.S. economic growth, of U.S. Employment andspeculation that the EU would not bail out Labor Force Participation course, but the ongoing saga in Europe Source: U.S. Bureau of Labor Statistics, Moody’s Analytics U.S. Employment & Labor Force ParticipationPortugal, raising the odds that a disorderly continues to weigh heavily on the minds of 600 400 66.0% 65.5%break-up of the eurozone would occur. U.S. business leaders and lenders alike. 200 65.0%During that period, the U.S. economy -200 0 64.5% 64.0%slowed to a crawl with GDP of just 0.8 It’s not by chance that the U.S. economy -400 -600 Labor Force 63.5% 63.0% Participation Ratepercent in the first quarter of 2011. Then, in reacts to every European market jolt; there -800 -1000 62.5% 62.0%the summer of 2011, there was talk about are significant economic and financial tiesGreece being forced to leave the eurozone; between these two massive economies. Source: U.S. Bureau of Economic Analysis (BEA),the growth rate in the U.S. slowed to just Nearly 14 percent of U.S. GDP is attributed Moody’s Analytics Small Business Hiring: Net % Firms Expecting to HireEconomic Forecast for Advanced and Emerging Economies Source: National Federation of Independent Business (NFIB) Small Business Hiring: Net % Firms Expecting to Hire 21 117 18 114 15 111 Geography Actual Estimate Forecast 12 9 108 2008 2009 2010 2011 2012 2013 6 105 102 3 99 World Output 2.8% -0.6% 5.1% 3.8% 3.3% 3.6% 0 96 -3 -6 93 Advanced Economies 0.1% -3.5% 3.0% 1.6% 1.3% 1.5% -9 90 United States -0.3% -3.1% 2.4% 1.8% 2.2% 2.1% Small Business Optimism Index Net % of Small Businesses Expecting to Hire Euro Area 0.4% -4.4% 2.0% 1.4% -0.4% 0.2% Source: National Federation of Independent Businesses (NFIB) Germany 0.8% -5.1% 4.0% 3.1% 0.9% 0.9% S&P 500 Forecasts France -0.1% -3.1% 1.7% 1.7% 0.1% 0.4% Year-End 2013 Italy -1.2% -5.5% 1.8% 0.4% -2.3% -0.7% S&P 500 Forecasts, Year End 2013 1650 S&P 500 in Spain 0.9% -3.7% -0.3% 0.4% -1.5% -1.3% 1600 last truly healthy year for property markets Japan -1.0% -5.5% 4.5% -0.8% 2.2% 1.2% 1550 (year-end 2006) 1500 Emerging/Developing Economies 6.1% 2.7% 7.4% 6.2% 5.3% 5.6% 1450 China 9.6% 9.2% 10.4% 9.2% 7.8% 8.2% 1400 India 6.9% 5.9% 10.1% 6.8% 4.9% 6.0% 1350 Brazil 5.2% -0.3% 7.5% 2.7% 1.5% 4.0% Source: Cassidy Turley ResearchSource: International Monetary Fund, World Economic Outlook, October 2012 www.cassidyturley.com | 5
  6. 6. 2013 Market Report Economic Overviewto exports, and about 20 percent of that U.S. rallied. Perhaps we are entering into Reserve pumps in, banks are pumping outgoes to the EU. Thus, if the eurozone another period of relative peace in the just $0.80. That’s very little bang for theexperiences a recessionary retrenchment, eurozone but it is likely to be short-lived. buck. Fortunately, the money multiplier hasdemand for U.S.-made goods and services The eurozone economies have significant started to increase more recently, so lendingwill take a severe hit—dropping U.S. GDP rebalancing to do and that will take years. is loosening but it needs to keep going.growth anywhere from 0.5 percent to 1 That said, the ECB has given the markets This is critically important because the U.S.percent. The financial ties are even more every reason to believe that it will do economy and commercial real estate willalarming. U.S. banks’ gross exposure to the whatever it takes to prevent a major collapse fall far short of potential until this improves,entire eurozone is $729 billion, nearly 60 of the euro. Our baseline assumption is largely because loans make the commercialpercent of tier 1 capital (i.e., common stock that the eurozone will experience some real estate world go ’round. When loansand cash reserves). In sum, U.S. banks mild growth in 2013 (GDP<1%). are flowing, capital markets are quadruplehave little choice but to safeguard against a the volume we are witnessing today.scenario where things go terribly wrong in In this way, the euro crisis continues toEurope. From a real estate perspective, it is suppress lending conditions and economic The good news is that we know investorsalso worth recognizing that at this stage in growth in the U.S. The money multiplier once again wish to borrow to buy commercialthe cycle, European sovereign debt yields effect, an important metric to watch, real estate. The Fed Senior Loan Surveyand CMBS spreads largely move in tandem. continues to sit at an all-time low. It shows that 30 percent of all banks—small,If conditions get riskier in Europe, investors measures the amount of money a bank can medium and large—are reporting strongwill flee from riskier real estate assets and create from increases in money created demand for loans to purchase commercialprices will fall for everything other than core by the central bank. Historically, when real estate. That level of reported demandbuilding assets. Recently the European the Federal Reserve increases the money per debt is actually stronger than what weCentral Bank (ECB) sent a strong signal supply by $1, banks would correspondingly saw in the last commercial real estate boomthat it is “willing to do whatever it takes to increase lending into the economy by $1 and slightly lower than the tech boom of thepreserve the euro.” Equity markets in the to $3. Currently, for every $1 the Federal late 1990s. There is also strong demand forEconomic Forecast: Economic Forecast:Indiana Statewide Industries Select Indiana Cities, % change 2012–13 Statewide Industry 2013 2014 Cities GDP Jobs Income Mining 5.5% 5.9% Indianapolis 2.0% 0.9% 3.0% Construction 4.5% 2.1% Fort Wayne 1.5% 0.9% 3.1% Manufacturing (Durable goods) -4.4% -5.0% Evansville 1.2% 1.0% 3.1% Manufacturing (Nondurable goods) 2.5% 2.4% South Bend 0.8% 0.4% 2.8% Retail -0.5% -1.0% Bloomington 1.1% 1.2% 3.4% Utilities 4.5% 4.7% Gary 1.3% 0.4% 3.7% Wholesale 1.1% 0.9% Muncie 0.6% 1.2% 4.2% Transportation -1.5% -2.9% Lafayette 1.1% 2.0% 3.3% Health care 4.7% 4.7% Terre Haute 0.6% 0.1% 3.3% Information services -0.8% -1.3% Anderson 0.4% -0.2% 3.0% Finance, insurance and real estate -1.3% -2.1% Elkhart 0.8% 1.3% 3.5% Unemployment rate 7.8% 7.2% Kokomo 0.6% 1.0% 3.5%Source: Bureau of Economic Analysis and CBER calculations Source: Moody’s Analytics, IUBRC6 | We know The State of Real Estate ®
  7. 7. January 2012 January 2013corporate loans, small business loans and simplest terms, the deficit is the amount ofhome mortgages. Demand for debt is not money the government must borrow to make Overview / Market Trackerthe problem. We also know banks have $1.8 ends meet when revenues are less thantrillion sitting idle—five times the norm—so expenses. In the fiscal year that ended in Manufacturing:capitalization is not the problem. Banks not September, the U.S. was $1.1 trillion short. ISM Purchasing Managers’ Index Source: Institute for Supply Management Manufacturing: ISM Purchasing Managers’ Indexhaving the clarity needed to feel comfortable If you’re an optimist, that’s better than the 70 Above 50 = Expansion 60enough to lend is the problem. Why are year before. If you’re a pessimist, that’s 50banks reluctant to loosen the purse strings? historically high. If you’re a realist, that simply 40 30Basel III, Dodd-Frank, lawsuits related to isn’t sustainable. But the political discourse 20the LIBOR scandal, $1.7 trillion in CRE in our country isn’t framed by optimists 10 0debt that is set to mature by 2016, the euro and pessimists; it’s framed by Democratscrisis, slowing global growth and uncertainty and Republicans who both believe they Source: Institute for Supply Managementsurrounding fiscal policy in the U.S. are all are realists. The good news is that there iscausing banks to safeguard against all of general consensus on both sides of the aisle Consumer Confidence that the federal deficit needs to be reduced (1985=100, SA)these things that could still go terribly wrong. Consumer Confidence (1985=100, SA)As a result, financial institutions have been substantially—by $3 to 4 trillion over the 160 140reducing their loan volume for commercial next 10 years—and there is a realization that 120 100real estate since 2009, and they want changes to tax policy, federal spending and 80 entitlement restructuring must all play a part. 60nothing to do with construction loans in 40particular, down 58 percent from their peak. The bad news is that there is widespread 20 0 disagreement on exactly what part eachThe financial challenges facing the banking should play and an unwillingness to confront Source: Cassidy Turley Researchindustry are nothing compared to the fiscal these challenges by either political party.challenges surrounding the U.S. deficit. In As a result, the U.S. political arena features United States: CRE Improvement CRE Improvement Source: Cassidy Turley Research United States: 18% 16%Economic Forecast: 14%Indianapolis Metropolitan Area 12% Vacancy Rate 10% 8% Indianapolis Indicator 2013 2014 2015 2016 6% Gross metro product ($ billions) $81.6 $84.1 $86.8 $89.3 4% 2% change (year-over-year) 2.0% 3.1% 3.1% 2.9% 0% U.S. Office U.S. Industrial U.S. Apartment U.S. Retail Current, Q4 12 Peak Total employment (000) 900.8 920.5 947.8 971.9 Source: Cassidy Turley Research change (year-over-year) 0.8% 2.2% 3.0% 2.5% Unemployment rate 7.6% 6.7% 5.8% 5.3% Indiana: CRE Improvement CRE Improvement Source: Cassidy Turley Research Indiana: Personal income growth 4.1% 6.8% 7.1% 6.0% 16% 14% Population (000) 1,828.3 1,851.7 1,874.4 1,898.2 12% Single-family permits 5,908 11,217 13,375 13,147 10% Vacancy Rate 8% Multifamily permits 2,103 2,441 2,458 2,311 6% Existing-home price ($ thousands) $127.6 $132.7 $140.2 $146.2 4% 2% Mortgage originations ($ millions) 6,241 4,098 4,315 4,718 0% IN Office IN Industrial IN Apartment IN Retail Net migration (000) 11.7 10.3 9.6 10.7 Current, Q4 12 Peak Source: Cassidy Turley ResearchSource: Moody’s Analytics www.cassidyturley.com | 7
  8. 8. 2012 Market Report Economic Overviewmuch of the blame for pervasive public the aging Hoosier baby boomers will be fiscal policy will likely mean growth willpolicy uncertainty that has helped foster on the demographic makeup of Indiana. decelerate in the fourth quarter of 2012the anemic recovery in the first place. The Indianapolis MSA—which comprises and possibly the first quarter of 2013, the more than one-quarter of the state’s total U.S. economy is poised to emerge on muchAn examination of voting patterns during population—will see the number of people stronger footing in the second half of 2013the past 40 years by the Congressional aged 65 and older nearly double in the with gains in output and employment.Recorder shows that political parties have next 20 years. But Indianapolis is not alone;steadily diverged ideologically to the point No single factor is more important for four other sizeable Indiana metros will seethat they are further apart now than at any commercial real estate than employment. increases of more than 80 percent in thetime since the end of Reconstruction. An Here again there is strength. Since January number of their senior citizens. This dramaticexhaustive examination is thought-provoking 2011 the U.S. economy has created on growth isn’t limited to the metros, however;but isn’t necessary to see the damaging average 172,000 jobs per month, which Indiana’s non-metro areas will see growth ineffects. Simply watching the fiscal cliff is right on par with the job growth we excess of 50 percent over the same period.drama unfold on television makes clear the experienced during the real estate boomdepths of both the political divide and the This means we are on the cusp of seeing years of 2004-2006. Every single majorinability of policymakers to reach even the a demographic-driven evolution in the sector in this economy, other than themost basic of compromises. This might drivers and management of medical government, is creating jobs. It’s also worthprovide a bit of theatrical enjoyment if the real estate. Health care providers have noting that the Job Opening and Laborstakes weren’t so high and if it wasn’t the been eager to expand into desirable Turnover Survey (JOLTS) data published byonly mechanism by which the country can communities and are increasingly looking the Bureau of Labor Statistics indicates thatplot a course towards much-needed fiscal at new types of commercial real estate, job openings at firms have been consistentlysustainability. Under current policies the space that has traditionally been occupied rising since July 2009. Currently there areratio of federal debt held by the public over by office and retail tenants. One change 3.7 million job openings, meaning that if weGDP—the debt-to-GDP ratio—will rise which is already recognizable is the took all the unemployed persons in the U.S.rapidly over the next decade. Specifically, migration of ancillary medical services, and provided them one of these jobs, thefederal debt held by the public is expected to such as claims services, membership unemployment rate would be 5.8 percent.rise from about 73 percent of GDP currently services, medical devices and supplies Of course, the skills mismatch is a greatto about 95 percent by fiscal year 2022. and health services communications, challenge for public policy makers, making from their historical hospital campusesOne of the biggest challenges for the federal such a scenario impossible. Nevertheless, to off-campus commercial space.budget is the aging baby boomer generation, the rise in job openings highlights the fact Support services moving off-campuswhich will raise government spending on that businesses are seeing better demand, also opens space to accommodate theSocial Security, Medicare and Medicaid. which will ultimately require more people co-location of R&D with critical care.Consider that in 2011 the first wave of baby and commercial space to meet that demand.boomers turned 65, with nearly 32 million Throughout all of the political theatrics,Americans projected to follow suit by 2030. Another sign of strength is that both the U.S. economy has been stunninglySince roughly half of an individual’s lifetime resilient. Real GDP in the third quarter of business and consumer balance sheetsmedical expenditures occur after the age 2012 was revised upward to 3.1 percent, are in much better shape. For businesses,of 65, this group stands to drive substantial the fastest quarterly growth of the past year. just four years after the worst shock togains in health care demand and spending. Help is coming from a housing recovery, the economy since the Great Depression,In turn, they will have a tremendous strengthening job market and healthier corporate profits are stronger than ever.impact on the management of real estate household finances that are driving gains In the third quarter, corporate earningsassets that enable the optimal delivery in consumer confidence and spending. were $1.7 trillion, up 18.6 percent fromof health care services. New population Although the damage from Hurricane a year ago, according to the U.S. Bureauprojections highlight just how transformative Sandy and an anticipated tightening of of Economic Analysis. Unfortunately,8 | We know The State of Real Estate ®
  9. 9. January 2012 January 2013record corporate profits have come at thereof. Nationwide, business investment inthe expense of investment and hiring as equipment and software stalled in the third Overview / MARKET TRACKEReconomic and public policy uncertainty quarter of 2012 for the first time since earlyhave kept businesses cautious and reluctant 2009. Amid a backdrop of uncertainty, U.S. Household Balance Sheetsto invest; however, if clarity is provided, companies are scaling back investment Look Much Better Sheets Look Much Better Household Balance (HH Debt Service Ratio %)corporations are in position to make the plans at the fastest pace since the recession, 14.5 14.0investments in people and equipment to with half of the nation’s 40 biggest publicly 13.5 13.0meet strengthening demand. For consumers traded corporate spenders announcing plans 12.5 12.0the household debt burden has shrunk to curtail capital expenditures in 2013. It is 11.5 11.0considerably and household balance irrational to assume that fiscal policy will be 10.5 10.0sheets are much stronger. Over the last anything other than a drag on U.S. economic HH Debt Service Ratio %three years, consumers have either paid growth, at least for the next few years, but Source: Cassidy Turley Researchoff or refinanced the bulk of their debt. if politicians can provide even a modicumThe household debt-service ratio—a ratio of clarity, the U.S. economy is ready to % of Banks Reporting Strongerof debt payments to disposable income— Demand for CRE Loans take the recovery the rest of the way. Source: Fed Senior Loan Officer Survey % of Banks Reporting Stronger Demand for CRE Loanslooks as strong as ever. At this stage in 60 Tech boomthe recovery, the U.S. consumer has Assuming policymakers can provide a 40 RE boomeither fully deleveraged or is two-thirds of bit of clarity, the economy is actually in 20 0 pretty good shape. Encouraging signs are 1995Q4 1996Q4 1997Q4 1998Q4 1999Q4 2000Q4 2001Q4 2002Q4 2003Q4 2004Q4 2005Q4 2006Q4 2007Q4 2008Q4 2009Q4 2010Q4 2011Q4 2012Q4the way there. Either way it suggests that -20consumer spending will start to contribute forming in many indices, all suggesting that -40 -60more positively to economic growth. the U.S. recovery is maturing and getting -80 stronger. Economic indicators for the final Source: Fed. Senior Loan Offi cer SurveyOutlook three months of 2012 looked encouraging.There are many reasons to be encouraged In November the Conference Board’s Bank Liquidity Tremendous: Consumer Confidence Index rose to its Cash Assets, $ Billionsthat the recovery will continue and Source: U.S. Board of Governors of the Federal Reserve System Bank Liquidity Tremendous: Cash Assets, $ billionsstrengthen. Even in Europe, as difficult as highest level in five years. Consumers have $1.7 trillion $2,000 in Novemberconditions are, progress is being made. never been more confident in this recovery $1,600Sovereign debt yields have calmed, the stock than they are currently. The housing recovery $1,200market is improving and the euro currency continues to impress. Home sales are the $800 $400is actually appreciating. Many things could highest in five years, and home prices are $0still go wrong, but far more things are still rising in 100 out of 132 metros tracked.going right. In the U.S. policymakers must Suddenly housing is poised to contribute Source: U.S. Board of Governors of the Fed. Reserve Systemfinally agree on a credible approach to the 1 percent to GDP growth for the next fewfederal budget that will reduce the long-term years, as it typically does during recovery Lending Muted: Money Multiplier (Ratio of M0 to M1)deficit and put the U.S. on a path towards periods. Indeed the stage is set for a real Source: Federal Reserve Bank of St. Louis Lending Muted: Money Multiplier: Ratio of M0 to M1 3.5fiscal sustainability. Until this is achieved, recovery to emerge. Much stronger growth 3.0businesses will curb their investments in for 2013 is still possible; real GDP growth of 2.5 2.0hiring and capital spending, corporate 2.5 percent to 3.0 percent can be achieved, Ratio 1.5strategic planning will be put on hold and the and 3 percent to 4 percent in 2014 is not 1.0 0.5commercial real estate recovery will continue a stretch given the latest trends in the U.S. 0.0to disappoint. If there is one area where economy. Against this backdrop, demand forthe dampening effect of uncertainty may be all commercial space is poised to improve Source: Federal Reserve Bank of St. Louisseen, it is corporate investments, or the lack in every segment. All we need is clarity. www.cassidyturley.com | 9
  10. 10. 2013 Market Report Industrial Market If You Build It, They Will Come Logistics Port at Kingsbury that will connect Kingsbury Industrial Park in LaPorte to a The industrial sector has demonstrated main CSX rail line. This project promises to tremendous resiliency in the face of slowing greatly enhance accessibility for the region global growth and pervasive public policy and serve as a major draw for distribution uncertainty both in Europe and in the United and advanced manufacturing enterprises. States. Nationally, the second half of 2012 Meanwhile, at home in Central Indiana, was one of the strongest in this recovery and industrial vacancy remains at the lowest reflects the continuation of a robust uptrend levels seen in decades, and this is spurring that began in 2011. In fact, the national additional development of all stripes. industrial sector has now leased up more space than it shed during the recession— By any measure, the amount of speculative INDIANAPOLIS INDUSTRIAL MARKET an important milestone and one that the development currently underway in India- At a glance Indiana industrial market eclipsed in 2010. napolis is big. With more than 3.2 million 4Q12 4Q11 square feet under construction, Indianapolis Statewide, markets such as South Bend, Inventory SF 240,497,547 238,456,331 is leading the Midwest in the amount of Mishawaka, Evansville, Fort Wayne and In- Vacant SF 7,992,340 10,303,229 dianapolis all continue to see positive growth new product it will bring online in 2013 to Vacancy Rate 3.3% 4.3% and declines in vacancy for multi-tenanted meet eager tenant demand. The sheer size Occupied SF 232,505,207 228,153,102 industrial space. Despite the headwinds of of development at 3.2 million square feet Absorption (Qtr) 1,598,736 1,893,113 sluggish growth and continued deleveraging stands alone as a big number, but when Absorption (YTD) 4,353,905 6,219,894 at home and abroad, the fundamentals of considering that 622,000 square feet of it the industrial sector are surprisingly robust. was already leased, the level of speculative Notable projects from around the state and development occurring in Chicago (1.7 MSF), Multi-Tenant Vacancy Rate Vacancy Rate historically strong demand metrics and Cincinnati (900,000 SF) and Minneapolis 10% development in Indianapolis are helping to (350,000 SF) and the lack of development Historical Average 8% provide a positive outlook for the industrial in other peer markets such as St. Louis, 6% market in 2013. Columbus and Louisville, the level of 4% development is even more impressive. A slew of projects taking place across the Projects currently underway include a 2% state offer a clear sign that demand is poised 795,000-square-foot speculative build- 0% 2005 2006 2007 2008 2009 2010 2011 2012 to spread to secondary markets in the ing located in AmeriPlex by Atlanta-based quarters ahead. In Southeast Indiana trucks Industrial Developments International; a Multi-Tenant Net Absorption (YTD) are moving, product is being stocked and 771,000-square-foot bulk warehouse in Net Absorption (YTD) people are being hired at Amazon’s new GreenParke in Plainfield by Chicago-based 8,000 Square Feet (‘000s) one-million-square-foot fulfillment center at Verus Partners; a 622,000-square-foot 6,000 the River Ridge Commerce Center in Jeffer- bulk facility on Ronald Reagan Parkway by 4,000 sonville, Ind. The impact of this new addition ProLogis and locally-based Browning Invest- to the industrial market will not be limited ments that was leased prior to completion; a 2,000 to River Ridge or Jeffersonville; expect to 450,000-square-foot building on Perry Road 0 see related industries that support Amazon in Plainfield by Kansas City-based VanTrust 2006 2007 2008 2009 2010 2011 2012 begin to occupy space across the Southern Real Estate; and a 600,000-square-foot Indiana landscape. In Northwest Indiana rail warehouse, expandable to more than a mil- is being extended at the 800-acre Inland lion square feet, in AllPoints at Anson via a10 | We know The State of Real Estate ®
  11. 11. January 2012 January 2013joint venture by Browning Investments and space requirements necessary to meet the Industrial / MARKET TRACKERDuke Realty. needs of a growing logistics and distribu- tion segment. This in turn is helping theWith so much speculative development Downtown Submarket: Indianapolis industrial market outshineunderway, the logical question becomes, Absorption and Vacancy Change other peer markets—and the nation as a Downtown Submarket: Absorption and Vacancy Change“Is there enough demand to absorb it all?” whole—by posting nine consecutive quar- 150 6% Thousands 5%Yes, definitely. Although vacancy rates will ters of occupancy growth. Multi-tenanted 100 4% 50rise closer to their historical average in the vacancy rates have fallen to a histori- 0 3% 2%short term when the space comes online, in cally low 3.3 percent, and vacancy rates (50) 1%the long run this amount of space is exactly among multi-tenant modern bulk facilities (100) 0%what the market needs to continue to be are tracking even lower at 1.7 percent. Net Absoprtion (YTD) Vacancy (%)driven by distribution. Because Indianapolis The tight market stems in part to a ban- Source: Cassidy Turley Researchis the most centrally-located major city in the ner leasing year in 2008, when the marketcountry—75 percent of all businesses in the absorbed over 7 million square feet at the East Submarket:U.S. and Canadian populations live within a same time that speculative construction came Absorption and Vacancy Change East Submarket: Absorption and Vacancy Changeday-and-a-half truck drive and more inter- to an abrupt halt, and the 2011 leasing 700 8% Thousands 600 7%state highways intersect Indianapolis than by giant online retailer Amazon of nearly 2 500 6% 5%any other region—the area has always been million square feet, thereby depleting the 400 300 4% 3%a major player in logistics. The impact on the market of a good portion of available modern 200 2% 100 1%industrial CRE market is clear: it is driven by bulk space. Since that time, net absorption 0 0%distribution. Indianapolis has emerged as for all product types has averaged 3 mil- Net Absoprtion (YTD) Vacancy (%)one of the most sought-after markets for dis- lion square feet a year and overall vacancy Source: Cassidy Turley Researchtribution centers in the country, and this in has continued to decline. An additionalturn is having a tremendous impact on both beacon of strength is that 2012 was also Northeast Submarket:the demand we are seeing in the industrial a year with bustling build-to-suit activity, a Absorption and Vacancy Change Change Northeast Submarket: Absorption and Vacancymarket and the development of much-need- further indication of corporate confidence 1,400 8% Thousands 1,200 7%ed product to meet that demand. Central in the underlying market conditions. Some 1,000 800 6% 5%Indiana’s strength rests on the region’s of the notable corporations moving forward 600 400 4% 3% 200 2%strength in three key areas: infrastructure, include SMC Pneumatics, with a build-to- 0 1% (200) 0%workforce and an accommodating public suit addition of 600,000 square feet in thepolicy for business. Logistics and distribution Northeast submarket, and Regal Beloit, with Net Absoprtion (YTD) Vacancy (%)firms have already discovered that India- a 376,000-square-foot build-to-suit develop- Source: Cassidy Turley Researchnapolis offers distinct geographic advantages ment in the Southwest submarket.for supply chain hubs, a highly skilled and North Submarket: While current levels of development to support Absorption and Vacancy Changereliable workforce and some of the lowest North Submarket: Absorption and Vacancy Changebusiness costs in the Midwest, and they are logistics and distribution are spectacular, 400 12% Thousands 300 10%parlaying their investment in Indianapolis something just as important is playing out 200 100 8% 0into bottom-line profits. in the manufacturing sector, namely the (100) 6% (200) 4% rebound in Hoosier manufacturing. Since (300) 2% (400)This shows no sign of stopping, and demand the recovery began in mid-2009, Indiana (500) 0%metrics confirm that Indianapolis is among factories have added more than 60,000 Net Absoprtion (YTD) Vacancy (%)the best-performing industrial markets workers, workers who need commercial Source: Cassidy Turley Researchin the nation, due in part to having the space to produce goods. In 2012 Central www.cassidyturley.com | 11
  12. 12. 2013 Market Report Industrial MarketIndiana alone saw close to 560,000 square Amid this backdrop the Indianapolis in- Northeast (+357,927 SF), North (+176,181feet of manufacturing space absorbed and dustrial market completed another strong SF), Downtown (+115,782 SF) and South-witnessed the manufacturing vacancy rate year in 2012 and is poised to continue that east (+60,644 SF). As a result, the overalldecline by 80 basis points (bps). The impor- trend in 2013. Leasing velocity tracked at industrial multi-tenant vacancy rate fell bytance of manufacturing isn’t limited to the an impressive clip throughout the past year a full percentage point over the balance with more than 4.2 million square feet of of 2012, ending the year at 3.3 percent,property markets; it is also the largest sector new leasing and 6.3 million square feet of markedly lower than the Midwest industrialof Indiana’s economy in terms of output, renewals and expansions. Net absorption average of 9 percent. Variations in submar-which last year totaled more than $278 for the fourth quarter registered 1,598,736 ket vacancy for all product types includedbillion. In terms of percentages, manufactur- square feet, placing net growth for the year the South (0.9%), Southeast (1.6%), Northing comprises over 25 percent of the state’s at 4,353,905 square feet. Submarket varia- (1.8%), West (2.3%), Southwest (3.1%),GDP, a much larger share than any other tions in year-to-date net absorption included Downtown (3.4%), East (4.1%), Northwestsector. In other words, as manufacturing the Southwest (+1,074,421 SF), South (4.2%) and Northeast (4.8%). Across thegoes, so goes the Indiana economy, and (+915,664 SF), East (+601,995 SF), West market, product-type variations in vacancymanufacturing went well in 2012. (+538,040 SF), Northwest (+513,251 SF), included transport (0.7%), modern bulk (1.7%), maintenance (1.8%), manufacturing (2%), medium distribution (4.4%), tradi-Largest Signed Industrial Transactions—YTD 2012*All square footage rounded to the nearest thousand, all transactions greater than 50,000 SF tional bulk (4.5%), office showroom (7.3%) and flex (7.6%). NEW LEASES In the Downtown submarket, net absorp- Company Location Quarter Square Footage tion for the fourth quarter registered 60,935 Anderson Merchandisers South 1 704,000 square feet, pushing year-to-date occupancy Hartz Pet Products Southwest 4 622,000 growth to 115,782 square feet. Downtown Prime Distribution South 1 412,000 product types witnessing annual growth were Undisclosed Northwest 1 380,000 medium distribution (+87,786 SF), office Regal Beloit Southwest 2 376,000 showroom (+58,129 SF) and flex (+11,600 Ohio Farmers Northwest 1 240,000 SF). Meanwhile, the manufacturing sector, Atkins East 1 212,000 which grew in the majority of submarkets, Smart Warehousing Southwest 1 190,000 gave back space (-41,733 SF). Downtown Celadon South 3 158,000 vacancy for all types currently stands at 3.4 International Paper Northwest 4 144,000 percent, down 50 bps from a year prior. Tracked traditional bulk, maintenance and Thermal Structures Southwest 2 141,000 transport facilities in the Downtown submar- Fagerdala Southwest 1 120,000 ket were fully occupied, with other product AVC Southwest 3 100,000 type variations made up of medium distribu- FacadeTek Northwest 4 90,000 tion (0.6%), flex (1.4%), office showroom Zenith Freight Northwest 4 90,000 (3.6%) and manufacturing (5.6%). Schenker Northwest 4 86,000 Rolls-Royce Southwest 1 85,000 In the East, net absorption through Decem- ber was 601,995 square feet, driven in part Fiserv Southwest 1 76,000 by 81,702 square feet of growth occurring in Total Square Feet 4,226,000Source: Cassidy Turley Research the final three months of the year. Flex prod-12 | We know The State of Real Estate ®

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