The Indianapolis industrial real estate market is stabilizing after several years of oversupply and high vacancy rates. Vacancy rates peaked at 16% two years ago and have since dropped to 9.5%, a decisive shift for a market long considered troubled.
Billy Powers, Vice President at Colliers Indianapolis, has observed this turnaround up close. A lifelong Indianapolis resident, Powers entered commercial real estate after a career in material handling equipment sales. That background gave him broker relationships that later shaped his approach to brokerage.
The market’s recent challenges trace back to the volatile period following the pandemic. During the initial supply chain disruptions, companies scrambled to secure warehouse space, often overcommitting on leases and stockpiling backup inventory. As supply chains normalized, many businesses found themselves holding more space than they needed. Construction of new industrial buildings continued at a record pace from 2022 to 2024, even as demand waned, driving a sharp rise in vacancies.
Powers says the mismatch between supply and demand created significant problems for owners and tenants alike. Many companies found their lease expirations misaligned with contract terms, making it difficult to adjust as business needs changed. “Once things began to normalize, people realized they had more space than they needed; some of their contracts didn’t line up with their lease expirations, and construction really outpaced demand. That combination was a recipe for disaster.”
The return to balance has been driven primarily by a slowdown in new construction. With fewer buildings coming online since 2024, existing inventory is being absorbed more steadily as companies reassess their space needs. Powers notes that the pause in development, combined with a modest increase in tenant demand, has helped the market regain equilibrium faster than many expected.
“Construction came to a halt in 2024 and 2025, so that’s also helped get us back to equilibrium now that demand is up and supply is down,” Powers says. Powers projects that vacancy rates could fall further, reaching as low as 7%-8% by the end of 2026, a level considered healthy for this type of market.
A major driver of industrial leasing activity in Indianapolis is the third-party logistics (3PL) sector. Powers says 3PLs have significantly changed their approach to leasing in response to recent market volatility. During the pandemic, many 3PLs took on long-term leases that outlasted their client contracts, counting on the ability to renew or backfill space as needed.
This strategy carries well-documented risks. When client contracts expire, and anticipated business does not materialize, the result has historically been a surge in sublease space as 3PLs struggle to fill excess square footage. Powers says that pattern has informed how the sector now approaches lease commitments. “Now we’re seeing a lot of these groups only willing to sign three and five-year deals, and they have to line up the term of that contract with the term of the lease, which is mitigating their risk.”
While this approach reduces 3PLs’ exposure, it also means landlords face higher turnover and must weigh the benefits of stronger credit tenants against the uncertainty of shorter commitments. End users willing to sign longer-term leases are competing for the same spaces, sometimes securing more favorable terms.
The pandemic has fundamentally changed how companies approach real estate decisions. Powers says approval processes have grown more complex and deal timelines have lengthened. Large transactions now often take a year or more to complete as companies scrutinize every detail before committing.
“People just don’t want to have that happen again. So now they’re getting very granular with their decision making and making sure they have all the facts,” Powers notes. Landlords have benefited from substantial rent growth in recent years and are now less inclined to offer fixed renewal options. Most renewal clauses now reset rents to fair market rates, allowing landlords to capture future appreciation and avoid below-market commitments.
While most attention focuses on large-scale distribution centers, Powers highlights the strength of the flex market: smaller industrial properties under 10,000 square feet that combine office and warehouse functions. The segment has outperformed expectations, driven by a surge in entrepreneurship and small-business formation during and after the pandemic.
Flex spaces, typically leased on two- to five-year terms, offer new businesses a low-cost, low-commitment way to test markets or scale operations. Powers notes that investors have taken notice, with both national and local capital pursuing flex portfolios. “A lot of these flex products have traded hands between investors recently at numbers that no one thought were possible with the cap rates and the rental rates,” he says.
When the broader industrial market stalled in 2023 and 2024, the flex segment continued to see record growth, underscoring its counter-cyclical appeal. National investors tend to target larger portfolios of 20 to 30 buildings, while local buyers focus on smaller acquisitions, but both groups are active in the space.
Despite improving fundamentals, Indianapolis still carries a reputation for oversupply and high vacancy rates. Powers acknowledges that the market’s image lags behind its improving conditions, with many investors and end users hesitating to commit. “There’s been a lot of hesitation for investors and end users to come to the Indy market recently because we’ve had such a high vacancy,” he says.
However, this perception gap may soon close. Powers points to roughly six to seven million square feet of pending deals not yet finalized or reflected in official statistics. As these transactions close in the coming months, the narrative around Indianapolis is expected to shift more decisively toward recovery.
Several key trends will shape the Indianapolis market through 2026. Construction activity is picking up but remains below historical averages, with only a handful of speculative buildings underway. Powers expects development to increase gradually over the next 12 to 18 months as market confidence returns.
The main challenge for Powers and his team at Colliers has shifted from managing excess inventory to meeting rising demand in an increasingly supply-constrained environment. This pivot carries both opportunities and risks, as the balance between supply, demand, and pricing will determine how sustainable the recovery proves to be.
Indianapolis’s path from oversupply to stability highlights broader themes in commercial real estate. Pandemic-era decisions continue to influence market dynamics, as companies and landlords reassess their risk tolerance and operational strategies. The rise of flexible lease structures, greater scrutiny in decision-making, and renewed investor interest in niche segments like flex space all reflect a more disciplined approach to growth.
Looking forward, Indianapolis may serve as a case study in how markets can recover from severe imbalances when supply is reined in, and tenant behavior becomes more strategic. For investors and users willing to look past lingering perceptions, the city now offers a more stable, opportunity-rich environment than at any point in the past several years. As vacancy rates approach equilibrium and new deals close, Indianapolis is positioned to become a leading example of successful market rebalancing in the Midwest.
About the Expert: Billy Powers is Vice President at Colliers Indianapolis, specializing in industrial real estate brokerage. A lifelong Indianapolis resident, Powers brings a background in material handling equipment sales that shaped his client-focused approach to commercial real estate.
This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
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