Research & Forecast Report

INDIANAPOLIS | OFFICE Accelerating success. Q4 2017

Indianapolis Office Rents Rising at a Record Pace

James Winkler Director, Market Research | Indianapolis

Market Overview Market Indicators The year began with a leadership change in the White House Q4 Q4 Y-O-Y 12 Mo. and at the Indiana Statehouse and ended with the signing of the 2017 2016 change Forecast U.S. Tax Cuts and Jobs Act. While there will likely be lasting effects from both national and local legislation, 2017 was more DIRECT VACANCY 16.0% 15.4% 0.6pp or less a year of the same positive economic trajectory. After DIRECT ASKING RENT $19.85 $19.01 4.4% 87 months of job growth and the creation of 2.1 million jobs, the unemployment rate continued its decline to 4.1%, YTD DIRECT NET ABSORPTION 27,024 315,087 -92.4% a 17-year low. The Indianapolis area, with an even lower 2.8% YTD NEW LEASING ACTIVITY 2,442,577 2,430,580 0.5% unemployment rate, is virtually at full employment. YTD INVESTMENT SALES 5,362,191 5,790,017 -7.4% The local office market vacancy rate ticked up 0.6pp to 16.0% by the end of 2017, with stark contrasts in activity between the CBD and suburban markets. Overall trends denoted steady new leasing and investment sales activity, while asking rents rose 4.4%, the largest annual increase on record. CBD Vacancy Trend by Subtypes CBD 35% 30% The CBD now has a lower vacancy rate than the suburban 25% markets for the first time since 2012. Resurgent class A product downtown absorbed 265,090 sf of vacancy in 2017, 20% due in large part to activity in top-tier office towers. After 15% years of declining occupancy, downtown top-tier office 10% towers shed 2.9 pp of vacancy in 2017 and ended the year 5% with a 15.8% vacancy rate. Growth in the tech sector, 0% highlighted by Salesforce’s Q2 17 move into the newly branded 2009 2010 2011 2012 2013 2014 2015 2016 2017 Salesforce Tower and InfoSys’s absorption of two floors in OneAmerica Tower, has been the catalyst for this change. Creative/ Top Tier Low Tier Class A asking rental rates, following the decline of downtown Character Class A Class A vacancy, rose to $23.80 by Q4 17 – up 5.2% year-over-year.

4.1% 2.8% 598,000 6,200 U.S. Indy MSA U.S. Y-O-Y Indy MSA Y-O-Y Unemployment Unemployment Office Job Growth Office Job Growth North Suburbs Direct Vacancy Rates Major 2017 absorption events occurred in the north suburbs as tenants shifted from Castleton, Meridian Corridor, and Keystone Crossing to new construction in fast-growing Carmel and 24.0% Fishers. The Northwest submarket was unaffected by 22.0% construction but saw the phasing out of Interactive Intelligence, 20.0% which contributed to year-end negative net absorption. Still, 18.0% the lion’s share of new leasing activity occurred in class A 16.0% buildings in the north suburban submarkets, and newly 14.0% available large blocks of space will create opportunities for 12.0% tenants looking for quality space in established suburban 10.0% office settings. Despite the increase in suburban vacancy, 2010 2011 2012 2013 2014 2015 2016 2017 asking rates are up 5.9% year-over-year as owners continue to invest in their properties and compete for tenants. NON-CBD CBD Investment Market Investment sales activity was strong for the second consecutive year. Inventory totaling 5.4 MSF traded for more than $600 million. The majority of investment activity was aimed at north suburban office parks. The year began as Investment Sales Volume Duke Realty executed its national strategy to shift away from office product by selling Hamilton Crossing, and ended with 8 Strategic Capital Group’s purchase of Precedent Office Park. 6 Market Outlook 1.9 4 2.3

Moving into 2018, new construction will continue to play a (MSF) 1.0 1.5 role in the north suburban markets, while new-to-market 2 2.8 4.0 0.7 tech and strong fundamentals will boost CBD occupancy 2.5 2.5 3.1 1.3 and asking rents. With Indianapolis landing on Amazon’s top 0 0.5 0.7 0.7 20 list of cities for its potential new headquarters, the area is 2009 2010 2011 2012 2013 2014 2015 2016 2017 gaining attention as a go-to market for growing companies.

Indianapolis | Office Submarket Map Class A Class B/C

Leasing Activity Distribution

214,984 400,558 CBD - Class A

CBD - Class B/C 620,183 227,972 North Suburban - Class A

North Suburban - Class B/C

Other Submarkets - All 978,880 Classes

2 Research & Forecast Report | Q4 2017 | Indianapolis Office Market | Colliers International Statistical Overview Indianapolis – Office Market

OVERALL DIRECT YTD NEW UNDER YTD LEASING YTD OVERALL YTD DIRECT DIRECT CLASS A INVENTORY VACANCY VACANCY SUPPLY CONSTRUCTION ACTIVITY NET ABSORPTION NET ABSORPTION ASKING RENT ASKING RENT SUBMARKET (SF) RATE RATE (SF) (SF) (SF) (SF) (SF) (FSG) (FSG) CBD SUBTOTAL 11,763,772 16.3% 15.7% 26,795 0 628,530 189,435 184,410 $21.27 $23.80 Airport 1,071,605 33.5% 33.5% 0 0 57,002 -56,995 -56,995 $15.22 $17.00 Carmel 920,994 9.8% 9.1% 134,694 80,000 63,878 135,275 141,775 $24.57 $25.68 Castleton 2,163,443 17.7% 17.5% 0 0 219,435 -51,950 -51,950 $18.50 $19.11 East 811,487 18.1% 18.1% 0 0 36,511 -64,367 -64,367 $15.32 N/A I-69/Shadeland 2,955,562 22.4% 22.0% 157,255 28,270 229,964 102,783 97,652 $19.83 $22.88 Keystone Crossing 4,343,428 16.1% 15.8% 54,000 0 405,160 22,412 -2,597 $21.71 $22.33 Meridian Corridor 6,698,056 11.3% 11.2% 59,935 0 467,931 -89,327 -127,539 $21.23 $23.80 Midtown 1,969,641 10.7% 10.7% 0 0 48,252 -19,818 -19,818 $16.65 N/A Northwest 3,786,361 18.9% 18.7% 0 0 212,695 -1,244 -115,178 $18.00 $20.00 South 1,103,517 9.5% 9.2% 23,625 0 48,170 32,601 35,935 $16.08 $19.00 West 864,838 28.3% 28.3% 0 0 25,049 5,696 5,696 $15.08 N/A NON-CBD SUBTOTAL 26,688,932 16.4% 16.2% 429,509 108,270 1,814,047 15,066 -157,386 $19.23 $21.87 MARKET TOTALS 38,452,704 16.4% 16.0% 456,304 108,270 2,442,577 204,501 27,024 $19.85 $22.47

Market Highlights – 2017 Notable User Transactions BUILDING BUILDING NAME, ADDRESS, CITY SUBMARKET TENANT OR BUYER TRANSACTION TYPE CLASS SF One West Parkwood, 250 W 96th St, Indianapolis Meridian Corridor St. Vincent / Ascension New Lease A 148,389 Three Woodfield Crossing, 8425 Woodfield Crossing Blvd, Indpls Keystone Crossing Sallie Mae Renewal/Expansion A 119,362 2601 Stout Heritage Pkwy, Indianapolis Airport Genuine Parts Co. Purchase A 100,000 Two Market Square, 251 E Ohio St, Indianapolis CBD Marion County Prosecutor Renewal/Expansion B 85,500 9200 Keystone Crossing, Indianapolis Keystone Crossing State Farm Renewal A 67,344 Capital Center North, 251 N Illinois St, Indianapolis CBD Indiana Supreme Court New Lease A 66,749 Mainscape Plaza, 4160 N Keystone Ave, Indianapolis Midtown Indiana Dept. of Child Services Renewal B 60,000 Castleton Park 15, 7999 Knue Rd, Indianapolis Castleton Royal United Mortgage Renewal/Expansion A 56,542

Notable Investment Sales BUILDING BUILDING NAME, ADDRESS, CITY SUBMARKET BUYER CLASS SF Precedent Office Park portfolio, Keystone Ave & 96th St, Indianapolis Keystone Crossing Rubenstein Partners, Strategic Capital Partners A, B 1,121,601 Monument City Center, 220 N Meridian St, Indianapolis CBD Keystone Realty Group B 558,336 Hamilton Crossing portfolio, Illinois St & 131st St, Carmel Meridian Corridor Group RMC A, B, Flex 548,333 Market Tower, 10 W Market St, Indianapolis CBD Square Deal Capital B 519,220 Woodland Corp. Center V & VI, 7601 & 7635 Interactive Way, Indpls Northwest Select Income REIT A 275,416 One & Two Penn Mark Plaza, 11595 & 11555 N Meridian St, Carmel Meridian Corridor Metonic Real Estate Solutions A, B 243,271

Notable Construction Projects CONST. BUILDING NAME, ADDRESS, CITY SUBMARKET MAJOR TENANT(S) COMPLETION STATUS TYPE SF The Allied Building, 350 Veterans Way, Carmel Carmel Allied Solutions; F.C. Tucker Completed – Q4 2017 Spec. 142,394 Merchants Bank Building, Carmel Carmel Merchants Bank (owner/occ.) Under Const. – Q3 2018 BTS 88,000 Midtown West, 571 Monon Blvd, Carmel Carmel MJ Insurance Under Const. – Q2 2018 Spec. 80,000 8350 Sunlight Dr, Fishers I-69/Shadeland Stanley Convergent Security Completed – Q3 2017 BTS 80,000 11939 N Meridian St, Carmel Meridian Corridor Blue Horseshoe Solutions Completed – Q4 2017 Spec. 59,935 Walker Place at River North, 8940 River Crossing Blvd, Indpls Keystone Crossing Walker Information; Bedel Completed – Q4 2017 BTS 54,000 The Braden Building, 8700 North St, Fishers I-69/Shadeland Braden Solutions; Vibenomics Completed – Q4 2017 BTS 45,255

3 Research & Forecast Report | Q4 2017 | Indianapolis Office Market | Colliers International 403 offices in 68 countries

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