by Whit Annibali, Vice President of Investments
As a secondary apartment market, metro Indianapolis may not garner the media and investor attention that its Midwestern counterpart Chicago does, or that coastal powers like New York and San Francisco do.
But the multifamily market in Indiana’s largest city has a lot going for it these days: declining vacancy rates, rents that are increasing at a healthy clip yet remain affordable and an expanding job market fueled by a growing tech sector. Add it all up, and it’s clear that the city perhaps best known for auto racing and the heroics of Peyton Manning presents an attractive opportunity for apartment investors and operators.
A thriving apartment market depends on healthy job growth. Since the start of last year, metro Indianapolis has added jobs at a higher rate than the U.S. overall, according to a recent report from the commercial real estate brokerage firm Marcus & Millichap. The area is expected to add 18,000 jobs in 2017, with significant growth in the high-paying tech sector, the report says.
With employment expanding, apartment occupancy is growing as well. After declining by 130 basis points in 2016, metro Indianapolis’ vacancy rate should dip another 30 basis points to end the year at 5.3 percent, Marcus & Millichap says. Meanwhile, the average effective rent is projected to increase by 4.2 percent in 2017 to $840 per month, leaving considerable runway for continued long-term growth, especially when one takes into account the sensible levels of new construction and the region’s healthy economy and increasing household formation.
Furthermore, the lower sales prices for apartment communities can allow investors to receive higher returns than they would in primary markets, especially when the communities have a strong operator in place and provide the high-end amenities demanded from today’s renter.
With all that it has going for it, JVM is committed to the metro Indianapolis apartment market for the long term. We currently own and operate one community in the area – the 402-unit Prairie Lakes in Noblesville – and will always consider strategic acquisition opportunities there when they meet our investment criteria.
Like so many other multifamily markets in the Midwest, Indianapolis doesn’t feature the soaring rents and sky-high community sales prices you’ll find in the nation’s primary markets. But over the long haul, it is positioned to deliver steady rent growth, strong operating fundamentals and higher cap rates – conditions that pave the way for higher yields and immediate cash flow.