Continued growth in e-commerce has driven industrial vacancy to an all-time low, declining by 70 basis points from a year ago to an aggregate nationwide vacancy of 5.6 percent in the fourth quarter of 2016, according to the year-end industrial market report from real estate services firm JLL. JLL researcher Aaron Ahlburn says that the former record low vacancy was in 2000, when the rate dipped to a 7.0-8.0 percent range as a result of market expansion coming out of the dot.com bubble. Increasing competition for industrial space has caused rental rates to hit record highs, breaking the $5 per sq. ft. triple-net barrier for the first time, Ahlburn notes, and has set off a building boom.
While the Midwest multifamily market may never experience the headline-grabbing stats that core, coastal cities do, its reliability continues to make the region an immensely attractive environment for private equity and similar investors. Secondary and tertiary metro areas such as Cleveland, Kansas City and Indianapolis are strong, steady, and a solid bet for investment. The higher cap rates and steady rent growth found in the Midwest offer higher returns in asset values than the nation's primary markets, especially as the sector approaches affordability ceilings in places like New York and San Francisco.
A recent study found the median time for cases to be resolved by the Indiana Tax Court has increased from about one year to almost 2.6 years since 2011, prompting criticism among practitioners and recommendations for reform. According to the Indiana Lawyer, by a 7-1 margin, those who responded to a survey on the court disagreed or strongly disagreed with the statement, “After taking the merits of cases under advisement, the Tax Court decides them in a timely manner without unnecessary delay.” The survey results are contained in a task force study of the court conducted by the National Center for State Courts, which was provided to the Indiana Supreme Court in April. The study examined performance of the court for the period of 2011-2014 compared with 2006-2010.
Property owners in Marion County, Indiana should be on the lookout for their property tax bills, which will be mailed later this week. While the deadline to appeal has already passed for most Indiana counties, Marion County decided to let property tax bills also serve as the notice of value for the 2015 assessment of taxes due in 2016. Therefore, Marion County property owners still have the opportunity to appeal their assessed valuations. The deadline to appeal is 45 days from the date the property tax bill is mailed. If you would like to discuss your 2015 assessed valuation, please contact our Indianapolis office.
As consumer trends continue to shift to online shopping, the industrial segment of commercial real estate is reaping the benefits. Online retail sales account for 7.2 percent of total U.S. retail sales so far in 2015, according to the U.S. Census Bureau. And that percentage is expected to double by 2020. Over the past three years, the growth of e-commerce has accounted for 55 percent of total industrial net absorption in the United States. In 2015 alone, e-commerce has been responsible for 31 percent of industrial net absorption year to date. In particular, these trends have fueled Indianapolis' industrial market, which now ranks eighth among all U.S. industrial markets in terms of total net absorption, according to Cushman & Wakefield.
In response to recent Indiana Board of Tax Review decisions favoring Meijer and Kohl's, which will result in major value reductions during the upcoming spring assessment cycle, Sen. Brandt Hershman is trying to advance legislation that would shore up county assessors' valuations of big-box stores. In these cases, the big box stores argued their property values should be compared to properties that have been vacated and sold, referred to as the "dark store theory," rather than based on the current condition of the business. Assessors are concerned other big box retailers will follow suit and "overwhelm" them with appeals.
A recent court decision favoring Meijer over Marion County, Indiana could impact the way big box retailers are assessed statewide. According to the Indianapolis Business Journal, the Indiana Board of Tax Review ruled in December that the East 96th Street Meijer store—one of the most successful in the state—should have been assessed in 2012 at the equivalent of $30 per square foot, not the $83 per square foot assigned by Marion County. The decision would hold Marion County responsible to refund $2.4 million to cover the years from 2002-2012. Other county assessors are under no legal obligation to abide by the ruling, but the closely watched case dealt with a fundamental issue in Meijer and other big-box chains’ appeals: Is the value of a store tied to the sales that happen inside, or is it limited to the big, boxy building itself?
A Washington think tank on state and local taxes is cautioning Indiana legislators to think twice about rushing to eliminate the business personal property tax. Governor Pence proposed abolishing the tax completely in order to stay competitive with other states, rather than just give counties the option to do so. Legislators, however, were hesitant to the proposal. No county has eliminated the business personal property tax yet, and a blue-ribbon commission is now studying tax reform options.
As the U.S. economy continues to improve and commercial real estate fundamentals strengthen, industrial investors are looking for opportunities for big returns that can come from increased risk and alternative investments. Secondary markets are piquing the interest of such investors this year, as these cities seem to provide the slightly elevated risk and more attractive returns along with many of the demand drivers that attract investments in primary markets. The push to secondary cities is taking place largely because the nation's top-tier industrial cities, such as Los Angeles, Chicago and New Jersey, can no longer meet the demands for large, modern warehouse space because there simply isn't any left. In fact, the overall vacancy rate in Los Angeles was a meager 4.5 percent in the first quarter, down 70 basis points from a year earlier.
Categories: Distribution Centers, Personal Property, Arizona, New Jersey, Industrial, Washington, Real Property, Industrial & Manufacturing, Indiana, Illinois, Missouri, Ohio, California, Florida, Warehouse