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Office, retail space trends leave recession behind

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For the first time in about a year, a Greenwood office building has vacancies.

Even with three of the building’s 93 small offices currently empty, Greenwood Office Suites is still beating the average vacancy rate for the city and south side.

Vacancies in office and retail buildings jumped during the national recession, when struggling businesses couldn’t afford rents or decided to downsize their offices to save money, vice president Jason Tolliver of Cassidy Turley real estate group said. But the rental market is slowly bouncing back, although one building owner has lowered rent and made other concessions to get and keep tenants.

About 20 percent of offices in multiunit buildings in Greenwood and southside Indianapolis are vacant, while only about 5 percent of retail locations such as strip malls and shopping centers are empty, according to reports from real estate groups Cassidy Turley and CB Richard Ellis.


As the economy has continued improving, companies are starting to grow again and are once more looking for larger spaces, Tolliver said. On the south side, vacancy rates dipped from 25 percent last year to 20 percent in the start of 2013, according to a Cassidy Turley report.

Office vacancy rates in the area are about the same as the total Indianapolis metropolitan area at 19.5 percent. But the Greenwood and Southport area has fewer retail vacancies at 5 percent, compared to the overall metro area at 7 percent.

Overall office vacancy rates were about 17 percent throughout central Indiana in 2007 and 2008, but increased sharply the next two years in the midst of the recession. During that time, many businesses throughout central Indiana cut back the space they were renting or moved to smaller locations to save money, Tolliver said. Over the past two years, businesses are starting to refill the offices that were vacated.

“We saw increased demand across all types of space. We’ve got a ways to go until we see the demand we saw before the recession. But there is no doubt that the market is improving. You’re seeing tenants leasing space and tenants renewing for longer periods,” Tolliver said.

The vacancy rate at Greenwood Office Suites, southwest of Smith Valley Road and State Road 135, was about 18 percent when Ashley Christian took over as building manager in 2011. But new tenants came in and the building was full between August and June.

The building has tenants ranging from nail salons, to real estate agents and lawyers, and a hospice center and medical office, Christian said. The small office size and shared amenities such as conference rooms in the building have made the offices attractive to small businesses and startups, she said.

“Within a year of being here it went from 75 percent to 100 percent (occupancy) in a couple months. It really is growing. It is incredible to look back,” Christian said.

The office building has rents that are higher than the Greenwood average, which is about $17 per square foot annually. While some offices that are in demand are able to keep tenants with higher rents, many renters have lowered prices to try to fill spaces, Tolliver said.

The average price per square foot for offices dropped about $1 throughout central Indiana since 2008, according to a CB Richard Ellis report.

Ohio Properties, which owns office and retail buildings in Greenwood, has had to offer lower rents and make other concessions including helping with remodeling projects or taking delayed rent payments, manager Allen Kirkendall said.

For example, a newer building like the strip mall at the southwest corner of Emerson Avenue and Main Street has rents around $20 per square foot, but in order to keep tenants, prices in some cases have been dropped to about $17 per square foot.

“You build them at a certain amount and you have to get a return on your money to pay the bank. Your rents have trended down to keep them full and keep them occupied,” Kirkendall said.

Before the recession, most of the company’s buildings were 90 to 100 percent full, he said. Now Ohio Properties’ vacancy rates are about in line with the area averages,

20 percent for offices and 5 percent for retail.

Aside from recovering from the recession, tax rates in the county and city fees such as sewer impact charges make it hard for tenants to commit to a long lease, Kirkendall said.

Current vacancy rates over the last five years have slowed new construction because the county has available space for new shops or offices, Johnson County Development Corp. president and chief executive officer Cheryl Morphew said.

Developers have built new offices along County Line Road in recent years as Franciscan St. Francis Health-Indianapolis and Community Hospital South have grown on the south side, she said. But new large office parks, such as South Park in Greenwood near Interstate 65, haven’t been built in more than a decade, Morphew said.

Whiteland and Greenwood are planning to focus on development at interstate exits at Whiteland Road and the future Worthsville Road, she said. But it could be several years until businesses or developers see demand for new office complexes.

“There is still some inventory out there, so I doubt you’re going to see developers getting financing for something like that,” Morphew said.

The south side, like the Indianapolis metro area, is a slow-growing market that’s not as volatile as other cities on the East or West coasts, Tolliver said. Developers have built conservatively, so that when the recession hit, there weren’t a pile of new vacancies on top of already empty buildings.

“You haven’t seen in the south a lot of development. I don’t think the south submarket is overbuilt. You don’t see a mass run of spec building with developers throwing up new towers,” Tolliver said.

An overall vacancy rate of 10 percent to 15 percent would indicate a strong rental market and could signal the need for new spaces, Tolliver said. Renters will likely need a couple more years to see vacancy rates move toward that range from the current 20 percent, but the market is trending in the right direction since 2011, he said.

Although both Christian and Kirkendall would prefer to have buildings that are full, vacancy rates at 10 percent or lower show an acceptable, healthy market for their properties.

For now, Ohio Properties is working to get spaces filled and looking for continued improvement in the economy, which will then increase the profits for renters, too, Kirkendall said.

“It’s coming back. All you’re doing is replacing some of the tenants that you lost. It’s not come back so much where we’re going to increase our rent,” he said.

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