Economy: Fed Raises Rates as Treasury Yields Climb
The Federal Reserve raised the federal funds rate by 25 basis points (bps) in September to a target range of 3.75%-4.00%, its first increase since 2023, citing persistent inflation. The 10-Year Treasury yield climbed above 5.0%, its highest level in nearly two decades, raising borrowing costs for commercial real estate. The unemployment rate in the Indianapolis MSA fell to 3.0%, down 30 bps year-over-year (YOY) and well below the national average of 4.2%.
Demand: Vacancy Stays Below Five-Year Average
The Indianapolis retail market recorded net absorption of negative 22,000 square feet (sf) in Q3 2026, bringing the year-to-date (YTD) total to negative 80,000 sf. Nine of the 25 trade areas posted positive absorption with the Broad Ripple/Glendale trade area recording the highest total, at 16,000 sf. Five trade areas reported no absorption, positive or negative. Despite remaining negative at quarter-end, net absorption improved 67.3% YOY, indicating less tenant movement compared to the prior year. Leasing activity totaled 174,000 sf, down 13.5% YOY, while deal volume reached 55 transactions, down 6.8% YOY. Development activity continued to moderate, due to two buildings delivering over the last quarter, translating to a 35.3% decrease in under-construction square footage. The overall vacancy rate increased 10 bps YOY to 5.0%, remaining just below the five-year average of 5.1%. The Near East/Fountain Square was the only trade area to report no vacancy, while six trade areas maintained vacancy rates at or below 2.0%. The Westfield and Broad Ripple/Glendale trade areas recorded the most notable quarter-over-quarter (QOQ) improvement, with vacancy declining 330 bps and 130 bps, respectively. In contrast, the Nora and Downtown Indianapolis trade areas experienced the largest quarterly increase in vacancy, rising 180 bps and 110 bps, respectively. The Strip product type registered the most significant improvement in availability, declining 50 bps to 3.7%.
Pricing: Asking Rents Decrease Across Market
Average asking rates decreased 3.8% QOQ to $16.64 per square foot (psf) triple net (NNN) and remain down 7.2% YOY. Asking rates were highest in the Fishers and Westfield trade areas, at $38.29 psf NNN and $28.68 psf NNN, respectively.
