Office Outlook Indianapolis Q2 2016 Large transactions continue to be the story of 2016
Office Overview Indianapolis Q2 2016 The Indianapolis office consists of 31.6 million square feet in 329 buildings with a 19.6 million square foot suburban inventory and a 12.0 million square foot inventory in the CBD. The total vacancy rate for the office in second quarter 2016 was 14.8 percent. In addition to the CBD, the bulk of the Class A and B office inventory is located in four major northern suburban subs - Keystone, North Meridian/Carmel, Northeast and Northwest. Second Quarter 2016 Statistics Total Inventory YTD Net Absorption Vacancy Rate Full Service Class A Asking Rent Full Service Class B Asking Rent 31,569,882 sf 248,853 sf 14.8 % $21.35 psf $16.76 psf Trends (Q over Q) Vacancy Rate Concessions Rental Rates New Construction
Keystone: The Keystone office consists of four major office parks Keystone at the Crossing, Woodfield Crossing, River Crossing, and the Precedent. The Keystone office provides high level suburban amenities with abundant dining, shopping and entertainment options. Inventory (sf) YTD Net Absorption (sf) Vacancy Rate Asking rent YTD Completions (sf) Under Construction (sf) Class A 3,181,647 67,414 12.0 % $21.94 psf 0 102,000 Class B 768,823 12,145 8.4 % $18.17 psf 0 0 Total 3,950,470 79,559 11.3 % $21.21 psf 0 102,000 North Meridian/Carmel: The North Meridian/Carmel sub provides the best interstate access of the four major suburban office s with a full cloverleaf interchange at 96 th Street and I-465. Work is wrapping up on a limited access highway that will help ease congestion in the area. Three major medical campuses St. Vincent Carmel Hospital, the Heart Center of Indiana, and IU Health North Hospital are located in this sub. Inventory (sf) YTD Net Absorption (sf) Vacancy Rate Asking rent YTD Completions (sf) Under Construction (sf) Class A 4,064,938 68,136 5.8 % $21.76 psf 29,200 121,050 Class B 2,385,880-3,013 12.2 % $16.66 psf 0 0 Total 6,450,818 65,123 8.2 % $19.87 psf 29,200 121,050 Northeast: The Northeast sub is located along Interstate 69 and includes the rapidly growing suburbs of Fishers and Noblesville. As the population of these communities have exploded over the last fifteen years, developers have aggressively built new office complexes along this corridor. Inventory (sf) YTD Net Absorption (sf) Vacancy Rate Asking rent YTD Completions (sf) Under Construction (sf) Class A 1,556,579 6,360 23.4 % $19.86 psf 0 80,000 Class B 1,801,078 16,305 20.0 % $16.63 psf 0 0 Total 3,357,657 22,665 21.6 % $18.13 psf 0 80,000 Northwest: The Northwest sub consists of four major office parks INTECH Park, College Park, Woodland Corporate Park and Fortune Park. There is also a significant flex/industrial component in this sub. Indianapolis-based developers Lauth Property Group and Duke Realty developed much of the Class A and B office product in this area. Inventory (sf) YTD Net Absorption (sf) Vacancy Rate Asking rent YTD Completions (sf) Under Construction (sf) Class A 1,434,742 36,548 11.7 % $20.05 psf 0 115,358 Class B 1,498,533-52,389 25.3 % $16.32 psf 0 0 Total 2,933,275-15,841 18.6 % $18.14 psf 0 115,358 Midtown, West/Southwest, East/Southeast, Greenwood: This group of smaller subs includes mostly small, local developers and Class B buildings. Suburban Overview: Inventory (sf) YTD Net Absorption (sf) Vacancy Rate Asking rent YTD Completions (sf) Under Construction (sf) Class A 10,352,054 194,059 11.2 % $21.24 psf 29,200 418,408 Class B 9,198,978-36,732 17.5 % $16.16 psf 0 0 Total 19,551,032 157,327 14.2 % $18.85 psf 29,200 418,408 CBD: The tenant mix in the CBD appeals to traditional businesses that need access to the state and local governments and court system. The CBD also provides an ample amenity base such as The Conrad, Circle Center Mall, Lucas Oil Stadium, Bankers Life Fieldhouse, and several upscale dining establishments. Parking is limited in most Class A buildings and will add an additional occupancy cost of $3.00 - $4.00 PSF. Inventory (sf) YTD Net Absorption (sf) Vacancy Rate Asking rent YTD Completions (sf) Under Construction (sf) Class A 7,101,003 16,792 19.6 % $21.50 psf 0 25,361 Class B 4,917,847 74,734 10.7 % $17.86 psf 0 0 Total 12,018,850 91,526 15.9 % $20.01 psf 0 25,361 22.0% 19.0% 16.0% 13.0% Historical Indianapolis Vacancy Rate Class A Class B Total 2008 2009 2010 2011 2012 2013 2014 2015 Q2 2016 s.f. thousands 800 600 400 200 0-200 -400 Historical Indianapolis Absorption 2008 2009 2010 2011 2012 2013 2014 2015 YTD 2016
Office Statistics Indianapolis Q2 2016 Class Inventory (s.f.) Total net absorption (s.f.) YTD total net absorption (s.f.) YTD total net absorption (% of stock) Direct vacancy (%) Total vacancy (%) Average direct YTD completions asking rent ($ (s.f.) p.s.f.) Under construction (s.f.) CBD Totals 12,018,850 58,531 91,526 0.8% 15.5% 15.9% $20.01 0 25,361 CBD Totals 12,018,850 58,531 91,526 0.8% 15.5% 15.9% $20.01 0 25,361 Midtown Totals 874,212-25,633-12,556-1.4% 18.9% 18.9% $14.62 0 0 Northeast Totals 3,357,657 17,437 22,665 0.7% 20.6% 21.6% $18.13 0 80,000 Northwest Totals 2,933,275 38,853-15,841-0.5% 18.6% 18.6% $18.14 0 115,358 East/Southeast Totals 252,032 641-8,059-3.2% 18.7% 18.7% $15.49 0 0 Keystone Totals 3,950,470 110,937 79,559 2.0% 11.0% 11.3% $21.21 0 102,000 North Meridian/Carmel Totals 6,450,818 49,344 65,123 1.0% 8.1% 8.2% $19.87 29,200 121,050 West/Southwest Totals 1,274,849 694 9,885 0.8% 19.1% 19.2% $14.40 0 0 Greenwood Totals 457,719-450 16,551 3.6% 14.0% 14.0% $15.80 0 0 Suburbs Totals 19,551,032 191,823 157,327 0.8% 13.9% 14.2% $18.85 29,200 418,408 Metro Totals 31,569,882 250,354 248,853 0.8% 14.5% 14.8% $19.30 29,200 443,769 CBD A 7,101,003 1,151 16,792 0.2% 18.8% 19.6% $21.50 0 25,361 CBD A 7,101,003 1,151 16,792 0.2% 18.8% 19.6% $21.50 0 25,361 Midtown A 0 0 0 0.0% 0.0% 0.0% $0.00 0 0 Northeast A 1,556,579 17,177 6,360 0.4% 21.7% 23.4% $19.86 0 80,000 Northwest A 1,434,742 52,029 36,548 2.5% 11.7% 11.7% $20.05 0 115,358 East/Southeast A 0 0 0 0.0% 0.0% 0.0% $0.00 0 0 Keystone A 3,181,647 95,981 67,414 2.1% 11.6% 12.0% $21.94 0 102,000 North Meridian/Carmel A 4,064,938 6,311 68,136 1.7% 5.8% 5.8% $21.76 29,200 121,050 West/Southwest A 0 0 0 0.0% 0.0% 0.0% $0.00 0 0 Greenwood A 114,148 0 15,601 13.7% 5.2% 5.2% $16.00 0 0 Suburbs A 10,352,054 171,498 194,059 1.9% 10.8% 11.2% $21.24 29,200 418,408 Metro A 17,453,057 172,649 210,851 1.2% 14.1% 14.6% $21.35 29,200 443,769 CBD B 4,917,847 57,380 74,734 1.5% 10.6% 10.7% $17.86 0 0 CBD B 4,917,847 57,380 74,734 1.5% 10.6% 10.7% $17.86 0 0 Midtown B 874,212-25,633-12,556-1.4% 18.9% 18.9% $14.62 0 0 Northeast B 1,801,078 260 16,305 0.9% 19.7% 20.0% $16.63 0 0 Northwest B 1,498,533-13,176-52,389-3.5% 25.3% 25.3% $16.32 0 0 East/Southeast B 252,032 641-8,059-3.2% 18.7% 18.7% $15.49 0 0 Keystone B 768,823 14,956 12,145 1.6% 8.4% 8.4% $18.17 0 0 North Meridian/Carmel B 2,385,880 43,033-3,013-0.1% 12.0% 12.2% $16.66 0 0 West/Southwest B 1,274,849 694 9,885 0.8% 19.1% 19.2% $14.40 0 0 Greenwood B 343,571-450 950 0.3% 16.9% 16.9% $15.74 0 0 Suburbs B 9,198,978 20,325-36,732-0.4% 17.4% 17.5% $16.16 0 0 Metro B 14,116,825 77,705 38,002 0.3% 15.0% 15.1% $16.76 0 0
Employment Update Metro Indianapolis August 2015 Indianapolis July 2016 4.0% Indianapolis unemployment 1.4% Indianapolis 12-month job growth Total jobs vs. Unemployment rate Indianapolis 1,200,000 Total Employment Unemployment Peak: 997,362 jobs 1,000,000 12.0% 10.0% 5.0% Indiana unemployment 4.9% U.S. unemployment 1.3% Indiana 12-month job growth 1.7% U.S. 12-month job growth 800,000 600,000 400,000 200,000 0 1.8% 8.0% 6.0% 4.0% 2.0% 0.0% The Indianapolis unemployment rate decreased to 4.0 percent, down 50 basis points from last month, according to the most recent estimates from the BLS, and is one full percentage point below the overall state unemployment rate (5.0 percent). Total employment in Indianapolis set a new record high for the second consecutive month, totaling over 997,000 jobs. This is 7,850 jobs greater than the previous record. Financial Activities had a strong month, posting an all-time record high number of people employed in the industry at nearly 66,000. This is 5,000 jobs greater than this time two years ago. Nationally, June saw 287,000 net new jobs added to the U.S. labor, a return to healthy growth after a weak May that saw gains revised downward to just 11,000 jobs. This is the highest monthly figure in eight months and will be reassuring to decision makers such as the Federal Reserve. Office real estate implications Office employment trends (12-month change) Indianapolis 20.0 Financial Activities Professional and Business Services Information Government 15.0 10.0 5.0 0.0-5.0-10.0 2010 2011 2012 2013 2014 2015 2016 Job growth/loss by sector (12-month change) Indianapolis Office-occupying industry supersectors account for 35.5 percent of Indianapolis jobs. This number is poised to grow in coming years. Financial Activities posted a record high number of jobs this month along with its strongest year-over-year growth. With several large employment expansion announcements this year, particularly from high-tech companies, Professional & Business Services will continue to be a large industry segment in Indianapolis and hiring should begin to increase. The Information supersector is poised to grow as well. Because so many technology companies are expanding, it is no surprise that this sector has dominated leasing activity in 2016. Tech companies have leased over 660,000 square feet, a total greater than the next three highest industry totals combined! As a whole, tenants in the office are growing their footprint, with two-thirds of signed leases so far this year being expansionary in nature. Source: Bureau of Labor Statistics, JLL Research
News on the street Indianapolis businesses expanding, contracting, etc. Salesforce.com, Inc. Technology: Expanding Salesforce.com, Inc. plans to invest $40 million over 10 years in its Indianapolis operations. It will add 800 employees and occupy a new regional headquarters in the newly renamed Salesforce Tower (previously Chase Tower). Sigster Technology: Expanding Sigster plans to invest $1.4 million to double its footprint in the Circle Tower Building and add 111 new jobs by 2020. Lumavate LLC. Technology: Expanding Lumavate LLC. will invest $451,000 to grow its Carmel office over five years. The firm will lease an additional 2,500 square feet at 550 Congressional Boulevard and plans to create up to 93 jobs by 2020. Sharpen Technologies, Inc. Technology: Expanding Previously known as Fathom Voice, the Broad Ripple-based company plans to nearly double its headcount by the end of the year. Fathom Voice hashed out a deal in 2013 with the Indiana Economic Development Corp. to employ 183 Hoosiers by the end of 2017 in exchange for up to $2.4 million in conditional tax credits. Sallie Mae Bank Finance: Expanding Sallie Mae Bank plans to spend nearly $16 million on a collections office and call center in Three Woodfield Crossing. It will hire up to 278 people before the end of 2023 in addition to its 131 existing employees. Torchlite Technology: Expanding Just one year after opening, Torchlite expects to add 142 jobs over the next three years and expand in its Mass Ave District location. Brite Systems Technology: Expanding Brite Systems said it will expand its downtown office at 101 W. Ohio St. The company plans to hire 52 additional employees to its existing 34-person staff by the end of 2021. Employment statistics Indianapolis Total non-farm employment May 2014 May 2015 May 2016 999,800 2.6% 1,023,200 2.3% 1,038,000 1.4% Unemployment rate 5.7% 4.6% 4.0% Indianapolis supersectors May 2014 May 2015 May 2016 Mining, Logging & Construction 44,400 0.2% 46,200 4.1% 47,500 2.8% Manufacturing 88,800 1.5% 90,100 1.5% 91,000 1.0% Trade, Transportation, & Utilities 209,100 1.5% 213,100 1.9% 224,300 5.3% Information 17,000 3.0% 16,500-2.9% 15,900-3.6% Financial Activities 60,900 0.8% 62,900 3.3% 65,800 4.6% Professional & Business Services 155,300 8.6% 163,800 5.5% 157,800-3.7% Educational & Health Services 144,200 0.8% 145,800 1.1% 151,100 3.6% Leisure & Hospitality 105,400 2.2% 108,800 3.2% 109,600 0.7% Other Services 44,200 5.2% 44,800 1.4% 44,800 0.0% Government 130,500 1.2% 131,200 0.5% 130,200-0.8% Industry stratification Indianapolis 8.8% 10.6% 4.6% 4.3%1.5% 6.3% 12.5% 14.6% 21.6% 15.2% Trade, transportation and Utilities Professional and Business Services Educational and Health Services Government Leisure and Hospitality Manufacturing Financial Activities Mining, Logging and construction Other Services Information
Office Insight Indianapolis Q2 2016 Needle moving transactions leading to big year Large transactions continue to be the story of 2016 Continuing the trend first reported last quarter, companies remain active throughout the Indianapolis metro area taking down large tracts of office space. None bigger than the deal struck by Salesforce to lease nearly 230,000 square feet at the newly renamed Salesforce Tower, formerly known as Chase Tower. All told, 16 lease transactions have closed already this year in excess of 20,000 square feet contributing to more than one million square feet of leasing velocity and nearly 250,000 square feet of net absorption year-to-date. Increased leasing activity leads to more construction Several office projects that began construction last year are poised to come online next quarter. Only one, Lakeside Green Business Center will add speculative space to the. River North will come online almost 95.0 percent preleased after breaking ground on a largely speculative basis. Two projects broke ground this quarter, but 11939 N Meridian Street is the only one bringing speculative space to the. Blue Horseshoe Solutions has signed on to anchor half the project with the other half available for lease. Groundbreaking will soon occur on three more office buildings slated to be anchored by Allied Solutions, Blue Sky Technology Partners and Braden Business Systems. With the amount of leasing velocity currently taking place and historically low vacancy rates, it may not be long before a purely speculative office development is announced. Investors focus on Skyline properties in second quarter Three of downtown Indianapolis Skyline properties traded hands this quarter. The Hearn Company purchased BMO Plaza from True North Management Group for approximately $40 million. Meanwhile, Mission Peak Capital closed on Market Square Center and Two Market Square, both of which had been in receivership. Market Square Center was purchased for just over $10 million and Two Market Square was acquired for roughly $5.4 million. Look for investment activity to continue during the second half of the year as several high profile offerings, including Salesforce Tower and PNC Center, remain on the. Top new leases signed this year Tenant Size (s.f.) Location Salesforce 227,781 Salesforce Tower Allied Solutions 109,600 Midtown Carmel Stanley Security Solutions 80,000 Fishers Gateway Sallie Mae 75,558 Three Woodfield Source: Republic JLL Services Research 68,000 Two Concourse Office developments currently under construction Project Size (s.f.) Delivery Interactive Intelligence BTS 115,358 Q3 2016 River North at Keystone 102,000 Q3 2016 Stanley Security BTS 80,000 Q3 2017 Lakeside Green Business Center 61,050 Q3 2016 Source: 11939 N JLL Meridian Research St 60,000 Q1 2017 Investors are high on Indianapolis in 2016 1,729,787 s.f. Total square footage of office investment sales in Indianapolis this year 31,569,882 Total inventory (s.f.) 14.8% Total vacancy 250,354 Q2 2016 net absorption (s.f.) 248,853 YTD net absorption (s.f.) $19.30 Direct average asking rent 2.5% 12-month rent growth 443,769 Total under construction (s.f.) 72.5% Total preleased
Landlord leverage Current conditions Indianapolis Historical leasing activity (s.f.) Non-CBD Indianapolis CBD Source: JLL Research Peaking Rising Falling Bottoming Tenant leverage 3,000,000 2,500,000 2,469,104 2,000,000 1,538,661 1,630,041 1,499,520 1,500,000 1,001,886 1,000,000 500,000 0 2012 2013 2014 2015 YTD 2016 Source: JLL Research Overview of net absorption Market grows in second quarter with no signs of slowing down The solid leasing activity that occurred during the first half of the year has led to almost 250,000 square feet of net absorption year-to-date. This already surpasses and nearly doubles last year s total of 150,000 square feet. What s even more impressive is that almost all of the largest transactions closed this year have yet to take occupancy. Sallie Mae took occupancy of its space this quarter and Republic Services is slated to occupy next quarter. Salesforce, Allied Solutions and Stanley Security, however, will not occupy until next year. This sets the Indianapolis office up for continued growth not only for the remainder of 2016, but into 2017 as well. Historical net absorption (s.f.) 500,000 400,000 300,000 200,000 100,000 0-100,000 2012 2013 2014 2015 YTD 2016 Source: JLL Research Overview of vacancy Vacancy continues to reach historic lows Last quarter, the overall office vacancy rate reached its lowest level since JLL started tracking the in 2008. Following strong occupancy growth throughout the second quarter, the metro Indianapolis office rate is now below 15.0 percent. With the future occupancies being tracked combined with limited speculative construction currently slated to hit the, look for vacancy rates to continue to decline throughout the remainder of the year. Historical vacancy rates 20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 2012 Source: JLL Research Overview of asking rents Landlords begin to raise rents With vacancy now below 15.0 percent, overall asking rents increased by 2.5 percent from where they were 12 months ago. Class A rates increased even more, going up by nearly 3.0 percent over the same timeframe. Current asking rents in the CBD are $20.01 per square foot overall, $21.50 per square foot for Class A and $17.86 per square foot for Class B. Meanwhile suburban properties currently command $18.85 per square foot overall, $21.24 per square foot for Class A and $16.16 per square foot for Class B. Expect rates to begin to moderate during the second half of the year. Historical asking rents ($ p.s.f.) $22.00 $20.00 $18.00 $16.00 $14.00 2012 Source: JLL Research
Office Insight CBD Q2 2016 CBD activity explodes during second quarter Quarter in review Downtown Indianapolis was full of noteworthy leasing and sale activity during the second quarter, adding to the momentum generated to start 2016. Net absorption for the quarter approached 59,000 square feet overall, bringing the year-to-date total to nearly 92,000 square feet. Almost all of this is attributed to occupancy growth within Class B product. Class B has almost 75,000 square feet of absorption year-to-date, which is 4.5 times greater than the second highest sub (Northeast with 16,000 square feet). Although Class A experienced modest growth this quarter with only 1,000 square feet of absorption, significant leasing activity occurred. In fact, four of the largest deals in the CBD this year were signed this quarter in Trophy or Class A buildings. Most notably was Salesforce agreeing to lease nearly 230,000 square feet at the newly renamed Salesforce Tower, formerly known as Chase Tower. Class A absorption will receive a boost when Salesforce takes occupancy next year. Additionally, three of downtown Indianapolis Skyline properties traded hands this quarter. The Hearn Company purchased BMO Plaza from True North Management Group for $40 million. Meanwhile, Mission Peak Capital closed on both Market Square Center and Two Market Square along with an adjoining parking garage. The properties had been in receivership and traded for roughly $20 million. Look for this investment activity to continue as several high profile offerings, including Salesforce Tower and PNC Center, remain on the. Historical net absorption (s.f.) 400,000 200,000 0-200,000 2013 2014 2015 YTD 2016 Historical vacancy rates 30.0% 20.0% 10.0% 0.0% Historical asking rents ($ p.s.f.) Outlook The CBD continues to gain momentum. Contrary to previous years, there is increasing interest by suburban tenants to relocate downtown. Many of these are technology companies, with 28 currently located within a quarter mile of Monument Circle. However, businesses in other industries are also moving downtown. Real estate developer Flaherty & Collins recently signed a 25,000 square foot lease to relocate from Keystone to Regions Tower. Currently, there remains 845,000 square feet in active CBD requirements with law firms being the most popular industry. $22.00 $20.00 $18.00 $16.00 $14.00 12,018,850 Total inventory (s.f.) 15.5% Total vacancy 58,531 Q2 2016 net absorption (s.f.) 91,526 YTD net absorption (s.f.) $20.01 Direct average asking rent 2.9% 12-month rent growth 25,361 Total under construction (s.f.) 0.0% Total preleased
Landlord leverage Heat map by building occupancy Recently completed lease transactions Tenant Building address Quarter signed Square footage Type Salesforce.com Salesforce Tower Q2 2016 227,781 Expansion in HNTB Salesforce Tower Q2 2016 31,686 Renewal General Services Market Square Center Q2 2016 25,350 Expansion in building Flaherty & Collins Regions Tower Q2 2016 24,503 Relocation Spot Freight, Inc. 6 Over Meridian Q1 2016 19,000 Relocation Property clock Rent condition Peaking Rising Falling Bottoming Tenant leverage CBD Sub
Office Insight Keystone Q2 2016 Keystone tops metro area in occupancy growth Quarter in review Contrary to the negative net absorption experienced at the start of the year, this quarter the Keystone sub posted strong, positive absorption that totaled over 110,000 square feet. Now, Keystone has the highest year-to-date absorption of all Indianapolis suburbs along with the greatest amount of both total absorption and Class A absorption recorded in the second quarter. This occupancy growth was primarily a result of the three largest deals signed in the first quarter taking occupancy (Sallie Mae, Cooperative Managed Care Services and Primaria Health). Construction is almost completed on River North at Keystone which will come online next quarter. Additional leasing activity from this quarter will result in the building coming online at 94.0 percent occupied. Some of the newly signed tenants to occupy space at this 102,000-square-foot, Class A building include Scannell Properties and Robert W. Baird & Co. Outlook Keystone continues to be one of the top subs to locate in Indianapolis for office space. Over 180,000 square feet has been leased year-to-date with more deals in the pipeline. There is currently just over 1.1 million square feet of active tenant requirements in the sub. This activity is being led by companies in the Technology and Healthcare sectors, contrary to completed transactions which were dominated by companies in the Finance industry. The sub continues to cater to tenants looking for either Class A or B space. Vacancy rates continued to decline this quarter. The Class A vacancy rate fell by 300 basis points from last quarter to its current rate of 12.0 percent while Class B vacancy declined by 190 basis points to 8.4 percent. Both are among the lowest vacancy rates in metro Indianapolis. Asking rates also remain at the top of the for both Class A and B options. Historical net absorption (s.f.) 100,000 50,000 0-50,000 2013 2014 2015 YTD 2016 Historical vacancy rates 20.0% 15.0% 10.0% 5.0% 0.0% Historical asking rents ($ p.s.f.) $23.00 $20.00 $17.00 $14.00 3,950,470 Total inventory (s.f.) 11.3% Total vacancy 110,937 Q2 2016 net absorption (s.f.) 79,559 YTD net absorption (s.f.) $21.21 Direct average asking rent 2.7% 12-month rent growth 102,000 Total under construction (s.f.) 94.3% Total preleased
Landlord leverage Heat map by building occupancy Recently completed lease transactions Tenant Building address Quarter signed Square footage Type Sallie Mae Three Woodfield Q1 2016 75,558 Relocation Oak Street Funding 8888 Keystone Crossing Q2 2016 23,891 Relocation Cooperative Managed Care Services River Road II Q1 2016 17,273 Renewal / Expansion Scannell Properties River North @ Keystone Q2 2016 15,587 Relocation Primaria Health, LLC Precedent Park #64 Q1 2016 11,960 New to Market Property clock Rent condition Keystone Sub Peaking Rising Falling Bottoming Tenant leverage
Office Insight North Meridian/Carmel Q2 2016 Solid leasing activity continues Quarter in review The North Meridian/Carmel sub remains a top destination for companies looking to locate an office in Indianapolis. The sub enjoyed strong leasing activity during the first half of 2016. So far, there has been nearly 410,000 square feet leased in 22 deals. This is the greatest number of transactions of all office subs. With this strong leasing velocity, it should come as no surprise that the North Meridian/Carmel sub continues to boast the lowest overall vacancy rate (8.2 percent) in the metro area. In fact, it is the only sub to have an overall vacancy rate in the single digits. Further, Class A vacancy continued its decline to 5.8 percent, the lowest rate among the major subs. These low vacancy rates are attributable to North Meridian/Carmel currently having the third highest overall total net absorption for both the quarter and year-to-date. Despite only recording 6,000 square feet of Class A absorption in the second quarter, it still has the highest Class A absorption for the year at 68,000 square feet. Class B had 43,000 square feet of absorption for the quarter, the highest of all suburban subs. Outlook As infrastructure improvements continue to wrap up along the US 31 corridor, leasing activity remains high in North Meridian/Carmel. The sub is currently the most popular among active tenants, with almost 1.4 million square feet in requirements currently being tracked. Construction is also increasing as 11939 N. Meridian Street broke ground this quarter with Building One in Midtown Carmel scheduled to follow later this year. These two projects will be anchored by Blue Horseshoe Solutions, Inc. and Allied Solutions respectively, and will add 40,000 square feet of speculative Class A space to the sub. Lakeside Green Business Center will add an additional 61,000 square feet of speculative Class A space upon completion next quarter. Historical net absorption (s.f.) 300,000 200,000 100,000 0-100,000 2013 2014 2015 YTD 2016 Historical vacancy rates 15.0% 10.0% 5.0% 0.0% Historical asking rents ($ p.s.f.) $23.00 $20.00 $17.00 $14.00 6,450,818 Total inventory (s.f.) 8.2% Total vacancy 49,344 Q1 2016 net absorption (s.f.) 65,123 YTD net absorption (s.f.) $19.87 Direct average asking rent 2.2% 12-month rent growth 121,050 Total under construction (s.f.) 24.8% Total preleased
Landlord leverage Heat map by building occupancy Recently completed lease transactions Tenant Building address Quarter signed Square footage Type Allied Solutions Midtown Carmel Building 1 Q1 2016 109,600 Expansion in Market NextGear Capital, Inc. 1320 City Center Dr Q1 2016 44,479 Expansion Blue Horseshoe Solutions, Inc. 11939 N Meridian St Q1 2016 30,000 Relocation Blue & Co., LLC. Hamilton Crossing III Q1 2016 29,671 Expansion Envista Two Penn Mark Plaza Q2 2016 20,472 Renewal Property clock Rent condition North Meridian/Carmel Sub Peaking Rising Falling Bottoming Tenant leverage
Office Insight Northeast Q2 2016 Northeast continues to enjoy increased activity Quarter in review After an exciting beginning to the year with several announcements of job commitments, the Northeast sub continued this momentum into the second quarter. Total net absorption made large gains over last quarter, increasing by over 17,000 square feet. This growth occurred almost exclusively in Class A product. This is a welcome rebound from the -11,000 square feet of absorption Class A posted last quarter. Although the Northeast still has the highest overall and Class A vacancy rates in metro Indianapolis, the rates did decline by 50 and 110 basis points respectively since the first quarter. Headquarter presence in the Northeast is growing through new build-to-suit office construction. A new Stanley Security headquarters broke ground this quarter. The three story, 80,000 square foot building is slated for delivery by the third quarter of 2017. Two more construction projects will break ground next quarter, both with tenants using the space as a headquarters location (Braden Business Systems and Blue Sky Technology Partners). By the end of the year, over 155,000 square feet will be under construction with the majority already being preleased. Additionally, glass manufacturer Ardagh Group announced it will be relocating its headquarters from Muncie, Indiana to Fishers by the end of 2016. Outlook The future continues to look bright for the Northeast sub as tenant demand remains high and is growing. Currently, there are 1.3 million square feet in active Northeast requirements. Expect this trend to continue as a result of the sub currently having the lowest overall and Class A asking rates in the northern suburbs combined with a highly skilled and educated workforce. Coupled with several mixed-use buildings proposed or already under construction, the Northeast will continue to attract residents and businesses alike to the area into the future. Historical net absorption (s.f.) 100,000 0-100,000-200,000 2013 2014 2015 YTD 2016 Historical vacancy rates 30.0% 20.0% 10.0% 0.0% Historical asking rents ($ p.s.f.) $22.00 $20.00 $18.00 $16.00 $14.00 3,357,657 Total inventory (s.f.) 21.6% Total vacancy 17,437 Q2 2016 net absorption (s.f.) 22,665 YTD net absorption (s.f.) $18.13 Direct average asking rent 2.2% 12-month rent growth 80,000 Total under construction (s.f.) 100.0% Total preleased
Landlord leverage Heat map by building occupancy Recently completed lease transactions Tenant Building address Quarter signed Square footage Type Stanley Security Solutions Fishers Point Business Park Q1 2016 80,000 Expansion in Market Republic Services Two Concourse Q1 2016 68,000 New to Market Ardagh Group Two Concourse Q2 2016 35,000 New to Market E-gineering Lake Point Center V Q2 2016 19,507 Renewal Cintas Castleton Park #42 Q2 2016 14,190 Expansion in Market Property clock Rent condition Northeast Sub Peaking Rising Falling Bottoming Tenant leverage
Office Insight Northwest Q2 2016 Northwest rebounds during second quarter Quarter in review After a sluggish start to the year, the Northwest sub made some positive gains during the second quarter, particularly within Class A product. Net absorption for Class A this quarter was the second highest in the Indianapolis metro area, totaling 52,000 square feet. With such a high level of occupancy growth, Class A vacancy rates were significantly reduced. Class A vacancy dropped from 15.3 percent in the first quarter to 11.7 percent this quarter, a decline of 360 basis points. This is the lowest Class A vacancy has been in the Northwest since 2012. The sub will receive another boost next quarter when Interactive Intelligence takes occupancy of Woodland Corporate Park, Building VII. This 112,500 square foot build-to-suit property is currently the largest ongoing tracked office construction project in the metro area. Interactive Intelligence increased its commitment to Indianapolis and the Northwest sub when it renewed its leases this quarter, totaling nearly 400,000 square feet, in Woodland Corporate Park through 2027. Outlook The Northwest sub will continue to gain momentum in the second half of the year with the pending occupancy by Interactive Intelligence referenced above. Further, there are currently several large users in the sub looking for space in the near future. There are currently over 850,000 square feet in active requirements for the Northwest, with Healthcare being the most popular industry seeking office space in the sub. Historical net absorption (s.f.) 300,000 200,000 100,000 0-100,000 2013 2014 2015 YTD 2016 Historical vacancy rates 30.0% 20.0% 10.0% 0.0% Historical asking rents ($ p.s.f.) $22.00 $20.00 $18.00 $16.00 $14.00 2,933,275 Total inventory (s.f.) 38,853 Q2 2016 net absorption (s.f.) $18.14 Direct average asking rent 115,358 Total under construction (s.f.) 18.6% Total vacancy -15,841 YTD net absorption (s.f.) 1.0% 12-month rent growth 100.0% Total preleased
Landlord leverage Heat map by building occupancy Recently completed lease transactions Tenant Building address Quarter signed Square footage Type Interactive Intelligence Woodland Park V, VI, VII Q2 2016 390,563 Renewal Total Quality Logistics Lakeside at College Park Q2 2016 23,521 Renewal Adesa/KAR Woodland Park III Q1 2016 12,456 Expansion in Reminger Co. LPA College Park Plaza Q2 2016 10,419 Relocation LTS Marketing, LLC. Intech One Q1 2016 8,598 New to Property clock Rent condition Northwest Sub Peaking Rising Falling Bottoming Tenant leverage
For more information, please contact: Mike Cagna Senior Research Analyst +1 317 810 7358 mike.cagna@am.jll.com Brianna Marshall Research Analyst + 1 317 810 7360 brianna.marshall@am.jll.com About JLL JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $56.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com. About JLL Research JLL s research team delivers intelligence, analysis and insight through -leading reports and services that illuminate today s commercial real estate dynamics and identify tomorrow s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without prior written consent of Jones Lang LaSalle IP, Inc. COPYRIGHT JONES LANG LASALLE IP, INC. 2016