Indianapolis: A Multifamily Success Story August 16, 2018

by Jay Madary, President and CEO of JVM Realty

When you think of Indianapolis, images of steakhouses, the Indy 500, and Peyton Manning’s gridiron heroics are likely some of the things that immediately come to mind.

What you may not know is the success of the city’s apartment market. Even within multifamily investment circles, the city remains somewhat below the radar. But the fact is, with its healthy job growth and solid operating fundamentals, Indianapolis is a place that savvy investors and operators should consider.

Strong Employment Growth

At the heart of Indianapolis’ strong and steady apartment market is job growth. Approximately 19,200 jobs were added in Indianapolis in 2016 and another 18,800 jobs were created in 2017, according to RealPage.

Last year, employment growth was largest in the Financial Activities sector, which added roughly 4,440 jobs, a 6.6 percent increase from 2016, RealPage says.

In June, the metro area’s unemployment rate stood at a mere 3.4 percent, according to the Bureau of Labor Statistics.

Luxury Apartment Supply and Demand in Balance

Because of its healthy economy and robust job growth, Indianapolis has been able to absorb the wave of apartment development it has experienced in recent years.

Approximately 2,000 new apartments were delivered in 2017, and another 2,700 units are slated for delivery this year, Marcus & Millichap says.

At the same time, however, rents have continued to rise, and vacancy rates have continued to decline. Indianapolis’ vacancy rate declined by 30 basis points over the course of 2017 and should dip by another 10 basis points to end this year at 6.1 percent, according to Marcus & Millichap.

Meanwhile, effective rents in the metro area are projected to increase by 3.7 percent in 2018 (they rose by 4.9 percent last year). Consider that such an increase would place Indy’s average effective rent at only $868 per month – roughly $500 below the national average – and one can see there’s ample runway for continued long-term rental growth in the area.

Cap rates are another appealing feature of the Indy apartment market. The average cap rate in the area stood at 7.4 percent at the end of the first quarter, according to Marcus & Millichap. That’s well above the rates investors will find in primary, coastal markets, and it produces higher yields and more immediate cash flow than investors will find in larger markets.

We Are in It for the Long Haul

At JVM, we are believers in the Indianapolis apartment market, and are committed to a long-term presence there. We see the opportunity and potential in this growing community and are invested in being a part of that growth.

We currently own and operate two luxury properties in the area: Circa Apartments at Mass Ave, a 265-unit luxury apartment community in Indianapolis’ Mass Avenue Arts District, regarded as the city’s pre-eminent entertainment corridor; and the 402-unit Prairie Lakes Apartments located Noblesville within the highly rated Hamilton Southeastern School District. Furthermore, we will always consider strategic acquisition opportunities in Indianapolis when they meet our investment criteria.

In the end, with its higher cap rates, consistent rent growth, healthy operating fundamentals and strong employment picture, Indianapolis is a perfect example of why we focus on the Midwest.