December 13, 2018 Comments Off on Does Indianapolis Have What It Takes to Overcome CRE Stagnation? Views: 343 Connect Classroom

Does Indianapolis Have What It Takes to Overcome CRE Stagnation?

By Rich Sarkis, CEO of Reonomy

After leasing nearly a quarter-million square feet in the building in 2016, CRM software giant Salesforce opted to purchase the naming rights to Indianapolis’ tallest tower in early 2017, marking a new era for the skyscraper that opened in 1990 as Bank One Tower.

Salesforce’s investment is one of a handful of bright spots in an Indianapolis commercial real estate (CRE) landscape that has been defined by uncertainty since the Great Recession. Though a robust ROI on Indianapolis CRE is by no means a sure thing, the city’s momentum in a number of key areas will help transform it into a formidable player in Midwestern real estate.

The State of Indianapolis CRE

According to Reonomy data, the multifamily asset class has been Indianapolis’ top performer in recent years. Total sales have increased every year since 2011, including particularly noteworthy jumps between 2011 and 2012 (17.9%) and 2015 and 2016 (11.0%).

That said, with the exception of a significant (22.0%) downturn in 2014, the median sales price of multifamily properties in Indianapolis has remained within the $70,000 to $78,000 range every year since 2013.

Similarly undulatory activity in Indianapolis’ office space market has led to a 2017 sales total only 0.5% higher than the city’s 2014 total. This near (net) stagnation has been reflected in office property values as well, with the median sales price of Indianapolis office space in 2017 coming in just slightly (4.2%) below the median sales price in 2014.

All the Ingredients for Success

What will it take to break Indianapolis CRE out of this long-running stagnation? In short, more of the same — and enough time (and patience) for it to take effect.

Following Salesforce’s lead, Infosys recently unveiled plans to build a $245-million training center on a 70-acre parcel near the former Indianapolis International Airport, a facility that will house 3,000 employees by 2023. “There’s no better place than Indiana to train future workers,” explained Infosys President and CEO Ravi Kumar.

To his point, with prestigious institutions of higher learning like Purdue University and Indiana University Bloomington (IU) within a 60-mile radius, Indianapolis offers companies a wealth of young, educated workers, and thanks to investment by the likes of Salesforce and Infosys, employment in Indianapolis’ “professional, scientific, and technical services” sector increased by 26.6% between 2008 Q1 and 2017 Q1.

This has created a tech-centric job market strong enough to convince many high-skill Purdue and IU grads to stay in the area after graduation. In fact, while the percentage of Indianapolis’ population aged 15 to 34 sits right at the national average (27%), the city’s five-year millennial population growth is more than double the national rate (5.6% versus 2.6%).

This growth in tech-centric employment has been driven in part by the fact that the cost of doing business in Indianapolis is only 91% of the national average. What’s more, the February passage of Indiana Senate Bill 257 exempted companies that sell digital software (including Salesforce) from having to collect the state’s seven percent sales tax, making Indiana one of only four states in the country with such an exemption.

Ultimately, the likes of Salesforce and Infosys are drawn to business-friendly regulatory environments and young, highly-educated workforces — things Indianapolis has in spades. By fortifying these selling points, stakeholders in the city should be able to attract additional investment from major tech companies, which in turn should finally break Indianapolis CRE out of its stagnant status quo.

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