Future Cities
2023 North America Industrial Big Box Review & Outlook: Indianapolis
April 4, 2023 5 Minute Read
After back-to-back record years for net absorption and lower vacancy rates, developers began many big-box new construction projects in H2 2022. Activity on this product has been solid as major companies expand into Indianapolis because of high labor scores, strong logistics offerings and its pro-business environment.
Demographics
Over 2.6 million people live within a 50-mile radius of the urban core, with a 2.3% expected five-year growth rate. Indianapolis’s central location offers access to over 43 million people in a 250-mile radius, 6 million more than nearby Chicago.
Figure 1: Indianapolis Population Analysis
Source: CBRE Labor Analytics, Q4 2022.
The local warehouse labor force of 69,590 is expected to grow by 7.1% by 2032, according to CBRE Labor Analytics. The average wage for a non-supervisory employee is $17.02 per hour, 1.0% above the national average.
Figure 2: Indianapolis Warehouse & Storage Labor Fundamentals
Source: CBRE Labor Analytics, Q4 2022.
*Median wage (1 year experience); non-supervisory warehouse material handlers.
Location Incentives
Over the past five years, there have been 615 publicly known economic incentives deals totaling over $1 billion for an average of $17,807 per new job in metro Indianapolis, according to Wavteq.
CBRE’s Location Incentives Group reports that top incentive programs offered in metro Indianapolis include the Economic Development for a Growing Economy (EDGE) Program, offering refundable discretionary tax credits for corporate income taxes for up to 10 years. These credits equal up to 100% of new income tax withholdings generated by a project’s job creation.
Another incentive program in Indianapolis is the Hoosier Business Investment Tax Credit Program, which offers a non-refundable tax credit to companies that create new jobs and make capital improvements to a business facility. The tax credits are calculated as a percentage of the project’s capital investment.
Figure 3: Indianapolis Top Incentive Programs
Source: CBRE Location Incentives Group, Q4 2022.
Note: The extent, if any, of state and local incentive offerings depends on location and scope of the operation.
Logistics Driver
Greater Indianapolis offers many logistics advantages for industrial occupiers. It is a top region for trucking, with more national highway intersections than any other state. Under its “Major Moves” program, Indiana is investing $10 billion over 10 years to add 400 miles of new highways. Indianapolis is home to the second-largest FedEx air hub in the world, helping Indianapolis International Airport consistently rank among the U.S.’s top five cargo airports. Indiana also ranks third for total railroad miles in the country.
Greater Indianapolis is a top region for trucking, with more national highway intersections than any other state.
Capital Markets
Indianapolis big-box sales activity decreased in H2 2022. Rapidly rising interest rates have led to approximately 150 bps increase in core cap rates from the low-to-mid-4% range to the mid-5% range. It was a top-ten most active U.S. leasing market in 2022, but investors will continue monitoring the speculative construction pipeline as Indianapolis leads the Midwest in under construction totals.
Supply & Demand
Another robust year of transaction volume has made Indianapolis a top-tier big-box market. Transaction volume totaled 15.2 million sq. ft. in 2021, the ninth-highest in North America. 3PL providers accounted for a whopping 76.2% of total transaction volume, with general retailers and & wholesalers occupiers accounting for 13.4%. The third consecutive year of over 10 million sq. ft. of transaction volume lowered the direct vacancy rate 240 bps to 5.8%, despite over 15 million sq. ft. completed. Lower vacancy rates started influencing taking rents, which increased 16.5% in 2022.
Developers are building quickly, with over 30 million sq. ft. under construction, the sixth most in North America. 23.2% of the product under construction is pre-leased. The remaining 23 million sq. ft. of available under construction product is over double the size of current existing vacant space. Despite strong leasing activity, especially from 3PLs, CBRE projects new development will increase vacancy rates in 2023. But the expected reduction in construction starts this year should reverse vacancy rate gains by early 2025.
Figure 4: Share of 2022 Leasing by Occupier Type
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Figure 5: Lease Transaction Volume by Size Range
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Figure 6: 2022 Construction Completions vs. Overall Net Absorption by Size Range
Source: CBRE Research, 2022.
Figure 7: Direct Vacancy Rate by Size Range
Source: CBRE Research, 2022.
Figure 8: Under Construction & Percentage Preleased
Source: CBRE Research, 2022.
Figure 9: First Year Taking Rents (psf/yr)
Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Explore Big Box Insights by Market
Cincinnati’s central location makes it ideal for big-box occupiers. Over 2.8 million people live within 50 miles of the market core.
More than 2.6 million people live within 50 miles of the market core, with a projected five-year growth rate of 2.1%.
Nearly 3 million people live within 50 miles of St. Louis but, like many Midwest markets, this is expected to decline by 0.4% over five years.
Contacts
Jeremy Woods
Executive Vice President
John Morris
President, Americas Industrial & Logistics, Advisory Services
