CITY HIGHLIGHT, DECEMBER 2004

LEXINGTON TO BE STABLE IN 2005
Paul Ray Smith, Bruce Isaac, Jim Kemper and Chad Voelkert

For 2005, the Lexington, Kentucky, market will be stable with selective growth in certain categories. There will be only a few new office projects in the suburbs and none in the central business district. No significant speculative construction of industrial or flex space is anticipated. The retail market continues to benefit from the regional retail trade area that Lexington serves, specifically the Nicholasville Road corridor and Hamburg Pavilion. The lack of retail zoned land continues to provide challenges in creating opportunities to expand the retail market. Investment sales were strong in 2004 and this strength is anticipated to continue in 2005, as buyers continue to take advantage of favorable interest rates and sellers of attractive cap rates.

Office

Office condominiums and approximately 15,000- to 25,000-square-foot low-rise office buildings are the most common projects occurring within the Lexington suburban office market. These projects are occurring in South Lexington due to the majority of zoned and developed professional office lots becoming available in the Beaumont, Wellington and Hamburg developments.

Existing suburban office developments are projected to experience increased competition in 2005, mainly due to the new space coming on line. Sublease space will also impact the market as a vacant 160,000-square-foot building plus other sublease space competes for tenants in the market. Occupancy levels are projected to trend lower with downward pressure on rental rates. The present suburban office market is estimated to have 293,812 square feet of vacant space and a vacancy rate of 13.56 percent.

While Lexington’s central business district has no new office projects planned, it is seeing increased interest by developers in building residential units. The University of Kentucky and the city of Lexington have agreed to work closer together to bring campus activities to the CBD. The present CBD office market is estimated to have 268,244 square feet of vacant space and a vacancy rate of 12.72 percent.

Converted industrial space to office space is not a factor in our market at this time.

Industrial

Lexington’s industrial market primarily consists of distribution and light industrial space, but Lexington and the University of Kentucky have focused in recent years on attracting high-tech and R&D companies. In 2004, the industrial market remained stable with slow absorption of existing facilities and sites in industrial parks. Lexington’s proximity to Interstate 75/64, its overall low cost of doing business, low electric power costs and continued strength of Toyota Manufacturing make it an attractive place for companies to do business. Amazon expanded their presence in Lexington by leasing an additional 384,000 square feet and Clark Material Handling Company (the inventor of the fork lift) purchased a ± 100,000-square-foot facility in West Lexington for its headquarters. Lexington reports ±1.1 million square feet of vacant industrial space with a vacancy rate estimated to be 14.38 percent

Retail

The most active areas for retail for 2005 will continue to be the Hamburg area and Nicholasville Road.

In the Nicholasville Road corridor, Brannon Crossing and Commerce Center are still proceeding with pre-leasing activity. At Regency Centre, located inside New Circle Road, the landlord is building a 12,000-square-foot, speculative retail building and has created a new outparcel. In addition, Fayette Mall has recently announced a 140,000-square-foot expansion with Dick’s Sporting Goods leasing 80,000 square feet for a two-level store. There are also several available freestanding restaurant/retail sites in the corridor, which is not typical; however, absorption of these sites is expected in 2005.

In the Hamburg area, Circuit City and Bed Bath & Beyond are now open at Sir Barton Place, and Off Broadway Shoe Warehouse and a Bonefish Grill-anchored small shop building are now under construction. Gordon Food Service, Starbucks Coffee and Chipotle Grill have also opened locations across Man O’ War Boulevard.

Lexington neighborhood centers continue to enjoy high occupancy rates and have seen rental rates increase slightly from 1 year ago.

With a total gross leasable area of ± 9 million square feet, the present retail vacancy rate is estimated to be 7.08 percent with ± 654,464 square feet of available retail space in Lexington.

Multifamily

The multifamily market has continued to be stable throughout Lexington. Although mortgage rates have seen record lows and home ownership is at an all-time high, landlords have continued to enjoy a relatively low percentage of vacancy. After a lack of new construction last year, this year three large projects near the University of Kentucky and Hamburg are breaking ground, which will add 1,452 units to the marketplace. With state-of-the-art exercise facilities, conference rooms and theatres, these new complexes include amenities that have not typically been seen in apartment complexes in central Kentucky.

The following executives from NAI ISAAC Commercial Properties contributed to this article: Paul Ray Smith, executive vice president; Bruce Isaac, SIOR, CCIM, senior vice president; Jim Kemper, vice president; and Chad Voelkert, associate.

©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.