It's a timeworn truism: Different markets see vast improvement at different times. For Indianapolis, that time is now. After watching its Midwest neighbors, especially Chicago, see tremendous fundamental growth and market tightening over the past 12 to 18 months, the Indianapolis apartment market is now seeing marked advancement in effective rents and occupancy levels. With its diverse economy and population growth, Indianapolis has outperformed neighboring markets over the past year, and its economy is projected to grow at a faster pace than the national average into 2010.

DRIVING FORCES Indy is best known for its famous Indianapolis Speedway and other tourist draws. But the city is also the nation's 12th largest, with about 785,000 residents. The greater Indianapolis metro area ranks 29th in the country, with roughly 1.7 million residents—an increase of 6 percent since 2000. This population growth is likely to continue with another 6 percent gain predicted between 2006 and 2011;, an online research subsidiary of Moody's, recently reported a 1.6 percent increase over the past year, which was above expectations. also reported that Indianapolis is being supported by healthy activity in business and health services as evidenced by its below average unemployment rate of 4.3 percent. The Indianapolis MSA includes Marion County and eight surrounding counties: Boone, Hamilton, Hancock, Hendricks, Johnson, Madison, Morgan and Shelby. The city's influence is significant: Indianapolis is the county seat for Marion County, the capital of Indiana, and the geographic center of the state.

Indianapolis' rents and occupancies are finally on par with its Midwest neighbors.
Indianapolis' rents and occupancies are finally on par with its Midwest neighbors.

Indianapolis' geographic location is one of its critical, enduring strengths. Often called the “Crossroads of America,” it is centrally located to the top 100 markets in the United States, with more than 70 percent of the U.S. population living within 700 miles. More interstates converge on Indianapolis than any other city in the country: Interstates I-65, I-69, I-70, and I-74 are connected by I-465, the city's beltway. This interstate system serves as a hub for major Midwestern cities.

Thanks in part to its central locale, Indianapolis also boasts a top air cargo facility—FedEx has its second-largest facility here, and an ongoing expansion is underway at the Indianapolis International Airport.

What's more, the city prides itself on business diversity. In addition to local transit-oriented commerce, pharmaceutical giant Eli Lilly is headquartered in the city and continues to expand: Its biotech complex has grown to twice its planned original size. Health care providers and insurance companies also are prevalent in Indianapolis, with several large hospital networks and more than 70 insurance companies dotting the business landscape. Other top employers include local colleges and universities, such as Butler University, Indiana University-Purdue University Indianapolis, and Indiana University in Bloomington, 50 miles south of the city.

TWISTS AND TURNS The Indianapolis apartment market is a substantial one, with more than 115,000 units in the metropolitan area. Historically, Indianapolis multifamily occupancy has hovered between 88 percent and 92 percent. But over the past several years, low interest rates and no-money-down mortgages encouraged a wave of apartment renters to become homeowners, many for the first time. Yet, unlike other large metro areas, Indianapolis did not see a slew of condo conversions, which would have tempered overall supply, if not outright decreasing it. Because Indianapolis' home prices have historically been some of the lowest in the nation, the market has been a very affordable one for prospective homebuyers.

Market rents in Indianapolis have mirrored occupancies and have been relatively flat over the last several years as moderate supply and increasing home ownership percentages reduced overall demand for apartment homes. Since 2000, rental concessions had also been widespread in the market, as landlords continued to woo renters with discounts in order to attract them to their complexes or to keep them from leaving to purchase a home.

These recent trends in single-family housing have, indeed, influenced the Indianapolis apartment market. Since 2001, the homeownership rate in Indy has increased 8.8 percent, to a rate of nearly 80 percent—which is also about 10 percent higher than the national average. This increase, as well as overall affordability, has negatively affected local apartment markets over the past six years. But the tide is turning in favor of rentals once again.

The market's slowing apartment supply has also nudged rents and occupancies up over the past decade, as late-'90s construction produced 2,000 to 3,000 units per year. This pace slowed some from 2000 to 2003, when completed units came in closer to 1,500 units per year. Since 2003, the figures have continued to decrease with less than 1,000 units completed in each of the last few years. In 2007, completions are expected to number approximately 850 units.

PIT STOPS TO STRAIGHTAWAYS Since the start of the decade, Indy's economic recovery—which mirrored a nationwide trend—has been marked by a thriving population; low unemployment figures; and positive job growth, with more than 15,000 jobs added this year. And although this recovery and economic growth also led to high homeownership rates, they recently peaked. Over the past two years, with some stops and starts along the way, the Indianapolis apartment market has gained traction and continues to strengthen as we hit the final months of 2007.