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Performance of Indianapolis Apartments a Pleasant Surprise

Rent Growth Highest Since at Least 2008

By Dave Sorter | Thursday, September 15, 2016

The 4.4% annual effective rent growth for Indianapolis apartments in August was the metro’s largest since Axiometrics started reporting the metric monthly in April 2008.  The rate increased 97 bps from July to August and by 329 bps since August 2015.

It’s not just luck (with apologies to Indianapolis Colts quarterback Andrew Luck) that this metro is the latest surprise among Midwestern metros, joining Detroit and Minneapolis-St. Paul as markets showing strength. The combination of decent job growth and moderate new supply is giving property owners and managers the ability to push rents.

Indianapolis has historically been a low-occupancy market, but August’s 93.9% rate was the second highest this year and above the August 2015 rate, so fewer apartments were available than usual.

Meanwhile, unlike most metros, fewer Indianapolis apartments are coming to market this year than did in 2015. However, one red flag is the deliveries identified for the third quarter of 2016 – 1,152 – is higher than any other quarter since the start of 2014.

Though Indianapolis’ new supply is light compared to many major markets, the jobs-to-permit ratio has lowered the past few years. For the year ending July 2016, government authorities permitted one new multifamily unit for every 7.4 new jobs. While this is more than enough to keep supply and the demand created from new jobs in equilibrium, it is still less than the ratios of 8.8 in July 2015, 14.9 in July 2014 and 18.1 in July 2013.

As is the case nationwide, most of the new supply is Class A, and developers are charging a lot of money for them. The average Class A apartment in Indianapolis rented for $1,126 in August, compared to the market average of $826. Prices will increase further, as the 20 properties in the lease-up stage at the end of August charged an average effective rent of $1,229, which includes a 2.8% concession rate (8.3% is one month’s free rent).

Axiometrics forecasts supply and demand for Indianapolis apartments to remain in relative equilibrium through 2018, with the notable exception of the second quarter of 2017, when supply will far outpace demand.

Though job gains have declined from the almost 30,000 for the 12 months ending July 2015 to 18,500 in the following 12-month period, the July job-growth rate of 1.8% is above the national level of 1.7%.

The high price of newer, Class A supply and the supply/demand equilibrium will likely keep rent growth high for the next few months. The influx of all the newer supply in the third quarter could mean some moderation in Indianapolis later this year.

 

Dave Sorter

Dave Sorter

Journalist

Dave Sorter is an award-winning journalist who spent 30 years as a newspaper reporter and editor before joining Axiometrics. He oversees all Axio blogs and newsletters and serves as senior editor of all Axio publications.

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