Why Institutional Multifamily Investors Should Have Indianapolis in Their Portfolio

As investors continue to chase yield, Indianapolis shines as an investment opportunity

Let’s be honest: Indy might not be the first city that comes to mind when you think “must-invest cities for 2018.” But this meteoric metro is checking all the boxes for strong economic return. From its strong rent growth to the affordable cost of living, to its expanding employment base and burgeoning tech scene, Indy needs to be on your radar.

Rent Growth

With 3.1 percent rent growth, Indy stands out compared to cities where rent growth has faltered. The average rent in Indianapolis is $844 per month while Class A’s average rent is $1,102. Class A apartments average rent PSF is $1.43, while the average rent PSF of all market rate units is $1.28 — a mere $0.10 PSF under the Chicago suburbs. The Indianapolis market delivered just over 1,900 units in 2017 and absorbed nearly 2,300 — 2016 had 3,500 units delivered, hence the surplus. In Indy, 1,150 units were delivered and just under 1,050 were absorbed.

Cost of Living

Indy is also one of the least rent burdened of all top metros, enabling more reasonable costs of living than other midwestern cities. Only 2 percent of high-earning renters ($75,000+ income) are spending more than 30 percent of income on rent. Nationally, only 6.5 percent of high earning renters are rent burdened. The cost of living is one of many strong drivers that makes renters want to stay in Indy.

Employment

Indianapolis experienced 2.3 percent 1-year employment growth and 4.2 percent 1-year income growth. The city is known for biotech research and development. From 2011 to 2016, 3,834 patents were granted within Indianapolis’ MSA. Between 2013 and 2015, the number of tech jobs in Indianapolis grew by 30 percent, the fifth-fastest in the country. It’s no surprise that this job growth directly correlates to Indianapolis’ startup scene experiencing a 72.9 percent growth rate. In March, development of 16 Tech, a $120-million investment project sprawling 60 acres, began. Fortune 500 companies based in Indy include Anthem, Eli Lilly, Cummins and Simon Property Group.

Emergent Urban Landscape

With a bevy of major universities and an expanding startup culture, Indianapolis has an emerging urban landscape. Local universities (including Butler University, Indiana University and University of Indianapolis) boast more than 50,000 students and over $2 billion in endowments. There’s a strong pool of educated renters who will want to stay in the area after graduation. The city has scored more than $7 billion in acquisitions and IPOs, and the 16 Tech Campus is going to create 2,600 new jobs over the course of the next 10 years. There’s no question why Indy was a Top 20 city for Amazon’s HQ2. As of Q1 2018, the Indy market had 5,700 units under construction which represents just 3.1% of their total inventory.

Indianapolis boasts some incredible stats. For those chasing yield for your portfolio, look no further than Indy.

KIG CRE recently produced a State of the Market for Indianapolis. To learn more about what makes Indy an interesting investment opportunity visit, http://kigcre.com/analytics. Please email me for the password jason@kigcre.com