nighttime bird's eye view across downtown commercial real estate indianapolis indiana with the buildings and streets lit up and low clouds slightly obscuring the tops of skyscrapers

Thanks to its pro-business stance, excellent credit ratings, and affordability, Indiana has been recently listed as the 17th best US state for entrepreneurs.

Although this Midwestern state often flies under the radar, it has much to offer to commercial real estate investors and entrepreneurs. For example, Indiana's workforce is the 15th largest in the nation, and access to specialized skills comes at a lower cost than in other states.

Due to its excellent transportation links, the state's capital, Indianapolis, has been dubbed the crossroads of America. Extensive road and railway infrastructure facilitates the movement of goods across the state and beyond, and three international airports link Indiana with other major business destinations.

The state is also noteworthy in terms of venture capital activity, since it's growing at a faster pace than established markets like San Francisco, Boston or New York, becoming the base of successful startups and unicorns in software, medTech, education, and agTech

The Indiana commercial property market is bolstered by a balanced and diverse industrial base that provides opportunities for businesses of all sizes, ranging from its 500,000 small businesses to 8 Fortune 500 companies.

The most important industry sectors by employment numbers are healthcare, social assistance, manufacturing, and real estate activities.

In terms of economic output and potential growth, key industries include logistics, life sciences, technology, and advanced / green energy.

Notable companies that have established their base in Indiana include Salesforce, Infosys, Roche, Fedex, Amazon, Rolls-Royce, and Raytheon.

Here's how the state's commercial real estate market accommodates the needs of local businesses.

Office Market in Indiana

Office Space in Indianapolis

Indianapolis is the largest and most active office market in the state, with approximately 39 million square feet of total inventory.

The most recent trend in the city's office property market involves the growth in demand for suburban units at the expense of downtown offices. In 2022, the suburban office market outperformed the CBD in terms of absorption and interest levels. Suburban locations are also where most Class A space is available, with nearly 67% of the total Class A inventory.

More recently, a two-tier commercial property market has emerged in Indianapolis, where Class B and C office space increasingly lags behind Class A stock.

Another trend involves shrinking footprint requirements, although the demand for quality office space is non-negotiable, as companies are becoming more aware of the impact that the office environment and amenities has on overall productivity.

Vacancy rates are declining across the entire office market and average 18% for all asset classes and locations. But reports of single-digit vacancy rates exist in east and southeast Indianapolis, and among Class C product in the downtown area.

Rents are trending downwards, reaching averages of $21 / psf, but Class A offices are holding their value better with smaller price decreases. The highest average asking rates are $24 / psf in Carmel, and $23 in downtown and Keystone.

The market outlook contemplates expansion and demand increases in Indianapolis's northern suburbs, with locations in Hamilton County drawing substantial construction activity.

Retail and Industrial Space Market in Indiana

Indianapolis retail customers have returned to in-store shopping habits, and retail venues and restaurants have benefited the most.

Average vacancy rates dropped to 5% city-wide, although they are below 2% in several sub-markets, such as Avon, Midtown, Beech Grove, and Noblesville.

Average asking rates for Indiana's retail space is $15 / sq ft (NNN), exceeding this figure in Whitestown and Glendale, where they are closer to $30.

In the short-term forecast, retail growth will be the key theme in Indiana, as large retail players have already announced they're establishing or expanding their presence in The Hoosier State, as is the case of Costco and BJ's Wholesale Club.

The industrial market has been experiencing strong gains thanks to e-commerce growth. Companies in need of warehouse and distribution space have been flocking to strategically located states, from where they can get their goods to most US customers within a couple of days. Indiana fills the criteria and so the state's industrial market has clearly outperformed retail and office, with records set on absorption, demand and vacancy rates.

Total market size is approximately 310 million square feet. Vacancy rates have dropped to averages of 5%, but are even lower with values between 1 and 2% in the CBD, and in west and south-east Indianapolis.

Lease rates for industrial properties have increased to averages above $5 / psf (NNN), and are close to record rates of $10 / psf in north and northeast areas.

In addition, there's a strong construction pipeline, with projects underway in all sub-markets except for the CBD and North Indianapolis. Mount Comfort, Franklin, Whiteland, and Greenwood are notable construction hotspots.

Tax Breaks, Business Incentives and Support

- The Indiana authorities have been making ongoing efforts to ensure that the business climate suits the needs of local companies and is conducive to growth. These efforts include making available several incentives that encourage business growth and reduce tax liabilities, including:

- Real estate tax abatements for businesses established in Economic Revitalization Areas or Economic Development Target areas.

- Non-refundable tax credits for qualifying research activities conducted within the state.

- Redevelopment tax credits that partially cover the expenses of redeveloping certain vacant or brownfield sites and industrial facilities.

Relocation tax credits for headquarters that meet revenue, employment, and venture capital investment requirements.

Sales tax exemptions for manufacturing and equipment used in R&D facilities and data centers.

A full list of incentives is available from the Indiana Economic Development Corporation website.