Indianapolis suburbs surge past downtown in office space race

Indianapolis' office market is bifurcating sharply, with suburban areas celebrating unprecedented demand while downtown struggles with rising vacancies. According to data from commercial real estate firm JLL, the suburbs added 357,000 square feet of occupied office space in the first quarter of 2026—exceeding the total suburban growth for all of 2025 and marking the strongest quarterly performance since 2018. Meanwhile, downtown Indianapolis lost 203,000 square feet of occupied space during the same period, driven largely by IU Health's departure from Landmark Center as the health system consolidates operations to a new medical campus under construction along 16th Street.

The broader Indianapolis office market reflects national trends reshaping American workplaces. The metropolitan area's overall vacancy rate stands at 21.4% as of the fourth quarter of 2025, up 40 basis points year-over-year, according to Cushman & Wakefield's latest market report. Class A office space saw the largest increase, rising 80 basis points, while Class C increased 40 basis points. Across the market, 446,541 square feet of new office space was delivered in 2024, with an average sale price of $87.51 per square foot.

Developers continue betting on Indianapolis' future despite the mixed signals. The city's largest new office development, 2160 W 86th, spans 62,000 square feet and represents developer confidence in the market's trajectory. Looking forward, an estimated 322,442 square feet of additional office space is projected to come online throughout 2025. However, market observers note that remote work and hybrid schedules—where employees now spend approximately 25% of work hours away from their desks compared to just 7% in January 2020—continue reshaping tenant needs.

JLL senior research manager Mike Cagna indicated that downtown recovery is expected to accelerate through office-to-alternative use conversions. Two planned downtown conversions are expected to eliminate nearly 200,000 square feet of unused office space from the market, potentially signaling a transition toward mixed-use development that could revitalize the central business district while acknowledging the structural shift in how companies utilize real estate.