- Associated Press - Sunday, March 16, 2014

INDIANAPOLIS (AP) - A search for trendier office space and a migration to the suburbs have raised concerns about rising vacancy rates in downtown Indianapolis’ prime office buildings.

Now a group of industry experts is jump-starting an effort to reverse the trend.

The Downtown Initiative is the latest incarnation of the Downtown Office Initiative, which disbanded in August 2012. Its goal is to ensure the satisfaction of downtown tenants and will include employers, building managers and owners and downtown residential builders, the Indianapolis Business Journal reported (http://bit.ly/1fS1eay ).

“Maybe we don’t come up with any silver bullets, but I think it’s time that we address it,” Cassidy Turley office broker Jon Owens said of the rising vacancy trend. “I don’t think this issue is going away anytime soon.”

The vacancy rate for Class A space, which is the most costly, began approaching 20 percent in 2011 for the first time in at least 15 years. It was 21.4 percent at the end of last year. The overall downtown office vacancy rate is 20.3 percent, according to Cassidy Turley statistics.

Some of the vacancies have occurred as longtime downtown tenants have moved to outlying areas or have reduced their space. New companies such as Street Links and Tinderbox are shunning traditional offices for trendier spaces with more character.

“A part of it is changing office trends,” said Sherry Seiwert, director of Indianapolis Downtown Inc. “The folks occupying space - there’s a reduction in the use and their preferences.”

Real estate observers say pushes by Columbus-based Cummins Inc. and ExactTarget to expand their downtown presence won’t help. Both plan to put up new buildings.

The vacancy rate in top properties downtown stood at 8.7 percent in 1998 during the height of the tech craze. It has risen and fallen since then, but leaders say the 21.4 percent rate is reason for concern.

One of the largest single blocks of available space downtown is in the 28-story BMO Plaza, where the top six floors totaling nearly 106,000 square feet are open. The 30-story Market Tower also has several floors available for lease.

Owens, who used to help handle BMO Plaza’s leasing, said he and Russell Van Til of Cassidy Turley negotiated with 95 companies and signed leases with just six.

“In this market downtown, you almost have to buy a deal,” Owens said, noting that a building owner might pick up moving costs to coax a lease signing. “Because if you don’t, you’re not going to get it.”

Brokers say they’re confident the market for Class A office space will improve.

A few high-rises have weathered the economic hardships. The 36-story OneAmerica Tower is nearly full and the 48-story Chase Tower is 90 percent occupied.

“We’re coming off of six or seven years of a recession, which has had everybody in a standstill or shrinking mode,” said John Robinson of JLL. “I think downtown has bottomed out and is on the way back up.”

Story Continues →