Economic Engines
Rev Up in Indianapolis

While many parts of the Midwest struggle with weak economies, Indianapolis, true to its race-car heritage, is lapping the competition with the fastest job growth in the region.

The Indianapolis metro area added 22,000 new jobs in the year ended in March, an increase of 2.4%. Demand for commercial real estate is up, and vacancies in most sectors are down, according to Property & Portfolio Research, a real-estate analysis firm in Boston.

Low costs and a central location served by five interstate highways have helped Indy become a national distribution hub. Commercial-property prices are below the national average, and the cost of doing business is significantly below nearby cities such as Chicago and Cleveland. Not surprisingly, the warehouse and distribution sector is strong, with a vacancy rate of 9.7%.

Indianapolis is enjoying sharp growth. The Indianapolis International Airport is to begin work on a $1 billion expansion project this summer.

This summer, Indianapolis International Airport will start work on a $1 billion expansion. The project will allow FedEx Corp. to double its cargo capacity at its Indianapolis facility, which at 1.9 million square feet is already its largest outside of Memphis.

Construction of large-scale, bulk-distribution facilities continues in industrial parks near the airport, southwest of downtown, and in the northern metropolitan area. And demand remains "very, very solid," says Jay Archer, a senior vice president at Duke Realty Corp., an Indianapolis-based real-estate investment trust. Duke, the area's largest commercial real-estate owner, is finishing 1.2 million square feet of industrial space with a further one million square feet under way.

Much of the new space is speculative, or built without tenants in place, including an 811,000-square-foot distribution facility developed by Browning Investments Inc. Browning last year filled up similar nearby facility when Logisco Inc., a Brentwood, Tenn., provider of warehousing and distribution services, took all 813,000 square feet.

While few people foresee a glut of space, the heavy construction activity could be keeping investors from buying properties, according to PPR. In addition, several large firms including Duke and Denver-based ProLogis, hold large portfolios of rentable space. In the past six months, only seven industrial properties changed hands, for a total of $80 million, according to Real Capital Analytics Inc. The average price was $33 a square foot, compared with $63 nationally.

Growth in the area's life-science industry has stalled, with some employers cutting positions, including drug maker Eli Lilly & Co. Another hometown company, Guidant Corp., which makes pacemakers and cardiac defibrillators, is being acquired by Johnson & Johnson of New Brunswick, N.J.

Few developers are building offices with the vacancy rate at 19.4%. A notable exception: Simon Property Group Inc., an Indianapolis-based retail REIT, is building a 300,000- square-foot headquarters downtown.

The metro area gained a net 6,800 new residents last year, according to PPR. Wages that are 10% above the national average are especially attractive when coupled with living costs that are 8% below average -- and some of the most affordable homes in the country.

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