CITY HIGHLIGHT, DECEMBER 2005

LEXINGTON CITY HIGHLIGHTS
John Miller, Chad Voelkert, Joanne Anderson, Philip Sewell II

Lexington Industrial Market

Lexington's industrial market primarily consists of distribution and light industrial space, however, Lexington and the University of Kentucky are focusing on attracting high-tech and R&D companies. Coldstream, a University of Kentucky-owned industrial park, has recently announced several new research and development tenants. Lexmark International, Lexington's largest employer, and the Toyota Motor Manufacturing facility in nearby Georgetown bring related distribution, manufacturing and technology companies to the Central Kentucky area. The majority of Lexington's industrial property is located on the northwest side providing access to interstates 75 and 64. This is also the area of Lexington that will see the most industrial activity in the near future. Lexington's proximity to interstates and its low cost of doing business make it an attractive area for companies.

In 2005, the market was stable with continued absorption of existing sites and facilities anticipated for 2006. The market continues to be active for small industrial and flex users with some seeking to buy or build owner-occupied facilities and relocate from multi-tenant rental. Absorption of larger owner-occupied facilities is generally slower. New construction is occurring primarily on remaining land sites in existing industrial parks such as the opening of the final phase of Enterprise Industrial Park. While the absorption of industrial-zoned land is steady, sites are still available for heavy manufacturing and light industrial uses.

Industrial properties located near Lexington's central business district and the University of Kentucky have recently become targets for urban infill. Lexington's history in the burley tobacco market and the recent national decline of that market has left several opportunities for redevelopment or creative adaptive reuse. These remaining tobacco warehouses represent most of the available multi-acre sites near the city's core. Some of the sites have been purchased by the University for construction of additional parking structures and classroom space. Other sites have been purchased by local and national developers for conversion to loft condominiums and student-focused apartments or for redevelopment as mixed-use projects. Bloomington Group and Polaris Real Estate Equities' Shelburne Plaza, a recently announced $80 million mixed-use development is a prime example of this type of project. In some cases, development value has driven prices   of these sites above the traditional industrial value.

— John Miller is a broker associate with NAI Isaac.

Lexington Office Market

Lexington, Kentucky's second largest city, has a favorable and growing local economy. It remains the financial, educational, retail, healthcare and cultural center of the Bluegrass Region for central and eastern Kentucky.

Suburban office has experienced a considerable amount of growth in new construction and an increase of sublease space. A number of owner-occupied condominiums and low-rise office buildings are being constructed in the Lexington market with an average sales cost of $150 per square foot.

Suburban office land continues to be in demand in the Lexington area. New office projects under construction or recently completed will add an estimated 750,000 square feet of space by year-end 2006. The office developments in the Hamburg, Nicholasville Road, Richmond Road, Wellington and Beaumont Center areas contain the majority of the zoned professional office land available. Class A office buildings comprise about 30 percent of the Lexington market. Investment sales have been strong in the area, and this trend should continue in 2006.

The vacancy rate in the Lexington suburban office market is currently 12 to 15 percent, with more than 300,000 square feet of available space. The vacancy rate has caused rental rates in some areas to drop. New technology, more employees working at home and open office landscapes have caused a decline of office space needed per employee. Rental concessions such as a month of free rent or a more generous tenant improvement allowance are being utilized in the market.

In the central business district, attorneys, accountants, engineering firms and financial institutions dominate the rental market, while the vacancy rate has decreased in the CBD. There are no new construction projects in the CBD and rental rates are stable.

There has been limited conversion of industrial space to office. However, there has been a trend toward converting older office buildings to residential condos.

— Joanne Anderson, CFM, is an associate – medical facilities specialist with NAI Isaac.

Lexington Multifamily Market

The multifamily market on the whole remains stable. Although home ownership is at an all-time high, landlords have continued to enjoy a low percentage of vacancy. Due to low interest rates, most new large developments are condominiums and townhomes and only a few new apartment complexes have occurred in the market. One of the largest new projects near the University of Kentucky, Newtown Crossing, was a student-oriented apartment complex. It was completed this   year and is now 100 percent leased. Two developments are underway near Hamburg Pavilion and should be completed by year-end.

— Chad Voelkert is an associate with NAI Isaac.

Lexington Retail Market

TThere is an exciting amount of retail activity and developer creativity occurring in and around the Lexington Central Kentucky market at this time. Similar to the rest of the country, many of the Lexington Central Kentucky markets continue to experience redevelopment and refurbishment of older established retail areas. This includes the redevelopment of aging shopping centers, strip centers and numerous other economically underdeveloped properties zoned for retail.

However, there are numerous varieties of new retail developments either under construction or proposed, including traditional strip centers, regional shopping areas and mixed-use projects. This development is occurring in all areas of the market — downtown inner city properties, established suburban retail areas and newly constructed residential areas located on the outer edge of the market.

The true beneficiary of this additional retail growth is the Lexington Central Kentucky retail consumer. The developments being created provide options to existing retailers through expansion and the capture of additional market share. In addition, they provide opportunities for new retailers to invest in and enter the strong Lexington Central Kentucky retail market.

The majority of the proposed development underway is by locally based developers. Nuti builders is developing the Gribbin Center located on Richmond Road and an additional proposed 60-acre retail and office development named Ashgrove Plaza located south of the Fayette County and Jessamine County border on Nicholasville Road. Directly across Nicholasville Road, Bellerive Development is under construction with Brannon Crossing, a 92-acre mixed-use development with more than 800,000 square feet of retail, office and mixed-use space, with the proposed development of 1,600 residential homes planned for adjacent properties.

— Philip Sewell II is the CEO and president of Sewell Development and Brokerage.


©2005 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.