land sales should gain momentum during the next 12 months. Prime residential and retail land will continue to be in demand throughout central Ohio.
Retail out parcels and multi housing land have risen in value. Retail out parcels increased by $80,000 per acre in 2003, while multi housing increased by almost $3,000 per acre. The northwest and northeast submarkets will continue to be the hot spots for land sales and development The Open Business Sector An economic recovery should bring more development, which will turn up the flame under land sales and prices, particularly retail and multi housing. Land sales for industrial and office development will remain slow.
The Indianapolis office market decline extended through 2003, the third year of sub-par performance. The dramatic emergence of sublease space, in excess of a million square feet comprising 25 percent of the market’s vacant inventory, became the primary headline, driven by the ever-shrinking economy, loss of jobs and overall tenuous business climate. The 2003 year- end numbers across the market are only slightly softer than they were at the beginning of the year, however, as the bulk of the drop in occupancy during this cycle occurred in late 2002. This suggests that the market is very close to the bottom with a recovery in sight.
Projections for 2004, although not extremely positive, suggest that the end of the downturn is near. Sublease space is disappearing due to a combination of positive absorption and landlord take-backs. The worst of the job losses appear to be over, while the latest GDP data suggest that demand for labor could gain momentum by the first quarter of 2004. That is about the time that Indianapolis area rental rates and vacancies should hit bottom. But the turnaround will be slow given the lag from employment gains to office space need, and should take well into 2005.
The two primary impacts forecasted for 2003 occurred only partially. First, the state tax assessment change did not affect landlords as significantly as previously assumed. Second, the amount of square footage delivered was less than forecasted. Both of these occurrences softened impacts to the office market and magnified the gains in occupancy that did occur. In particular, the CBD market performed better than it had in the previous three years combined. Occupancy growth there and continued construction deliveries in the suburbs allowed the CBD to surpass the suburbs in terms of occupancy for the first time in recent history.