INDIANAPOLIS — A University of Toronto study of cell phone records finds that usage in downtown Indianapolis is only 41% of what it was before the 2020 COVID pandemic when the Mile Square emptied out and workers stayed home.
Now its three years later, COVID appears to be under control and fading from the health scene and while employers are asking more of their workers to come back to the office, downtown foot traffic is not close to its 2019 levels.
”You are still seeing higher water marks on Tuesday, Wednesday, Thursday, and fewer coming downtown on Mondays and Fridays,” said Taylor Schaffer, President & CEO of Downtown Indy Inc. “We’re also continuing to see an uptick on evening and weekend traffic.”
Cushman & Wakefield, commercial real estate brokers, found leasable downtown office space vacancy at nearly 20% during the first quarter of 2023, several points higher than its traditional average.
”I think its getting really close to peaking, we hope. I don’t think it will go significantly up, its still pretty high,” said Managing Principal Tim Michel from his office at One American Square. ”The tower I’m in, its probably 25% occupied on a Monday and Friday, and it gets up over 65% on those Tuesdays, Wednesdays, Thursdays.”
West Coast tech support firm Salesforce has put three floors of office space, almost 25% of its footprint, in the downtown tower that bears its name up for sub-lease.
”I think what you’ll start to see and you’ve seen some of it is when those leases do roll that there will be companies that will enter into lesser space,” said Michel. ”You may not have as many private offices, you may have more common spaces, conference rooms, but nobody’s gonna have as many of those private offices going forward.”
While a pair of high profile office buildings, the Gold Building at Delaware and Ohio Streets, and the AT & T Building at North Meridian and Ohio Streets, have been or are being converted into residential properties, not every office building is a candidate to be converted for housing.
”There have been some conversion of office buildings to housing but its not an easy thing to do,” said George Tikijian, Cushman & Wakefield Executive Vice Chair. ”The structure of the building has to support housing because housing requires windows, so buildings that have large floor plates that are square and have a lot of interior space are less likely to be conversion candidates, but buildings that are more rectangular and have more outside space make more sense to convert to housing, and then there’s also the issues of plumbing and HVAC.”
Downtown Indy Inc., quoting statistics from the Costar Group, finds multi-family occupancy rates in downtown Indianapolis at 95.3% while its leased up office occupancy rate in the first quarter was listed at 90.8%.
Observers predict the impact of the pandemic reset for downtown office workers has not yet run its course.
”Experts I’ve talked to seem to indicate that you have a two-to-three year tail for true overall office trends in terms of leasing, renting out and companies, businesses, making decisions looking toward the future for that space coming out of the pandemic,” said Schaffer.
”There are buildings that are going to be winners, such as the higher amenities buildings, the higher profile buildings, there seems to be a gravitation toward those types of buildings, and there will be some losers unfortunately that will have to figure out what to do with their building,” said Michel. ”Some of them may have to be torn down and repurposed over time.”
”I think the amount of work-from-home workforce will get smaller over time as we get further away from COVID,” said Tikijian. ”You might just get a situation where the owners of the buildings, the lenders of the buildings, have to reduce the cost of the office space to the point where there are potential tenants for it. For example, start ups and small companies that maybe couldn’t afford downtown today and would otherwise go to the suburbs where its cheaper maybe as costs come down for buildings that don’t otherwise have demand, that might open up a new market for office space downtown.”
Downtown Indianapolis has 11.3 million square feet of office space with 2.2 million square feet designated as vacant.
With less available square footage, the Keystone area and the westside have significantly higher office vacancy rates.