IU Health Hospital Campus – Development Series #1 (Indianapolis Downtown Submarket])

Indianapolis has numerous developments happening in our Central Business District (CBD), and I thought it would be beneficial to outline these projects—not just focusing on the scope of individual developments, but also examining how they relate to specific property types, user needs, and how this data can assist business owners and tenants. Additionally, this information is valuable for investors looking to understand what’s happening downtown.

Let’s begin with the largest of the nine developments—the IU Health Campus, a massive project currently underway. This development will likely be the biggest healthcare project in the state for many years.

The Numbers and Project Scope:

The first part of this development involves the scope, size, and purpose of the project. The campus spans 44 acres, stretching from 16th Street to 12th Street, Capital Avenue, and I-65. It’s located just outside the CBD. This expansive site will transform the north side of the city’s skyline. At the core of the development is a 16-story hospital complex, which will feature three patient towers, totaling 2 million square feet of space with 864 private patient rooms.

The facility will offer a wide range of services, including acute care, medical services, education, and research, consolidating space from IU Health Methodist and University hospitals, along with the IU School of Medicine. The project will also include multi-use buildings, logistics, parking, office spaces, and a small amount of retail. The total investment is $4.3 billion, making it one of the largest capital projects in the state.

Medical Office Space Usage:

Moving on to medical services already present in the CBD, we’re seeing a mix of independent providers and larger healthcare networks. According to CoStar data, there is currently 706,000 square feet of leased medical space across 23 properties, which is part of a broader 1.6 million square feet of healthcare space in the market. Major providers like Methodist and Eskenazi Health are part of this mix, along with independent practices offering services such as internal medicine, dentistry, and eye care.

The vacancy rate in these healthcare spaces has increased to 18.9% over the last year, up from 15%. To put this in perspective, the overall office vacancy rate in the CBD submarket will be compared later. Medical tenants in downtown Indianapolis tend to occupy low-rise buildings, typically one to five stories, which are often older and not always designed for modern healthcare needs.

In mapping out all the medical users in the area, we can see a variety of services—chiropractic, massage, and wellness-based tenants, not just hospital-driven healthcare. If we include all types of medical uses, the square footage could be closer to 1.4 or 1.5 million square feet, compared to the total office market in the CBD, which spans about 12 million square feet.

Total Indianapolis Downtown Office Market:

Next, we’ll look at the impact of the IU Health Campus development on these medical users and the surrounding office market. The CBD currently contains 12.7 million square feet of office space, with a general vacancy rate of 24.7%. Compared to the 18.9% vacancy rate among medical users, this shows that specialized medical facilities are somewhat more in demand. However, mixed-use developments, like the Bottleworks District, offer exciting opportunities, drawing a variety of tenants who are willing to pay a premium for space. For example, Bottleworks is achieving rental rates around $36 per square foot, with some lease comps even exceeding $30.

While office space demand may vary by location, there are notable successes like the Stutz building, which has attracted large tenants such as Talbott, leasing tens of thousands of square feet.

Conclusions:

To wrap up, the IU Health campus will likely drive smaller medical tenants away from the CBD submarket. Some may need to relocate, while others might go out of business, depending on how the new campus fulfills their service needs. The size and state-of-the-art nature of the IU Health facility will make it challenging for independent practices to compete.

The question then becomes: What happens to these tenants if they relocate? And who will backfill these spaces, especially with the current office vacancy rate already on the rise?

On the flip side, this development could create new opportunities for other developers in the area. They may look to acquire nearby buildings for different uses, such as retail or residential spaces, to meet the demand for proximity to the health campus.

These are the key takeaways. If you found this video helpful, please give it a thumbs up, share it, and subscribe to the channel. I’ll see you in the next video in our development series!