Chris Carmen  /   May 15, 2024

If you’re an industrial tenant in the Indianapolis market right now, you’re well aware that conditions are quite tough. According to the latest market data, the overall vacancy rate has surged to 8.9% – up a staggering 330 basis points in just the last year. This spike has been driven by decelerating demand and continued delivery of speculative development projects.

What does this mean for the tenant?

For industrial tenants in Indianapolis, this period of elevated vacancies and slowing demand translates into a prime opportunity to capitalize on landlord motivations and reset their rental economics.

This tenant-favorable dynamic means you can push for rental rate reductions, substantial free rent periods, oversized tenant improvement allowances, flexible termination options, and more. Tenants who move decisively to engage representation and enter negotiations armed with the latest market intelligence will be best positioned to maximize their posture and extract optimal terms. For those able to think strategically, this soft landing could present generational opportunities to realignReal Estate costs in line with your operational objectives.

Where to start?

Despite robust leasing activity in the logistics sector, which has historically dominated the top lease deals, overall net absorption remains well below historical averages. This suggests ongoing challenges in absorbing the glut of newly delivered industrial space hitting the market.

As detailed in the overview, Indianapolis’ industrial sector has experienced substantial inventory growth in recent years, far outpacing the national average. The market’s development focus on larger properties over 500,000 square feet represents the bulk of these new deliveries. However, this big-box emphasis has created a dichotomy where large industrial sites remain vacant while smaller-bay vacancies remain quite tight.

While the market has seen growth in average asking rental rates, the increases have decelerated as landlords face the new reality of rising vacancies amid economic headwinds. Indianapolis’ relatively lower industrial rental rates compared to other major markets have allowed owners to gradually push rents, but that may become more difficult as the gap between supply and demand widens, especially for big-box properties.

As your dedicated tenant advisor at CARMEN Commercial Real Estate, we understand this challenging industrial landscape presents both obstacles and compelling opportunities for tenants – if you know where to look and how to negotiate effectively. Here are a few key tactics to keep in mind:

Lease Renewals With vacancies elevated at nearly 9%, landlords are extremely motivated to retain creditworthy tenants like yourself. Don’t blindly renew – this is an ideal chance to re-trade your lease for better economics like a rental rate reduction, generous TI allowance, free rent, termination option, etc.

 If your space no longer meets your needs, there’s never been a better time to explore relocation or expansion options in Indy. With supply outpacing demand, you can expect to negotiate very aggressive packages from landlords eager to fill vacancy. Potential deals could include multi-year rental abatement, oversized TI packages, flexible termination rights, and more.

Blend & Extend For tenants with a longer lease term remaining, the soft market allows you to capitalize through a blend and extend deal. Extend your lease commitment in exchange for resetting your rental rate to blend the above-market rate you’re paying with today’s lower market levels.

What You Can Do This Quarter:

  1. Request a portfolio review of all your industrial leases to identify short-term and long-term opportunities for immediate savings or to plan ahead for future lease events.
  2. If you have an upcoming renewal, expansion need, or relocation requirement in the next 6-18 months, engage CARMEN this quarter to get ahead of the market cycles. The more runway, the better we can position you.
  3. Ask about our tenant-focused industrial market reports and forecasting data. Knowledge is power – having the latest market intelligence gives you an edge in negotiations.

Reach out to us today to get started. At CARMEN, our singular focus is advocating for industrial tenants. When it’s simply a relationship between you, your advisor, and prospective landlords, our advice and negotiations are entirely geared towards maximizing your interests and leveraging the current market conditions to your advantage.

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