SOUTHEAST SNAPSHOT, DECEMBER 2006

Louisville, Kentucky Industrial Market

The Louisville industrial picture continues to illustrate solid growth and development as witnessed by positive overall absorption and perhaps year end figures that will rival last year’s record setting pace. Specifically, the Louisville industrial market has been expanding south along Interstate 65 into Bullitt County. Users would like to be near the airport and the UPS Logistics hub and want quick access to the primary arteries in the area.

Some industrial properties in the submarkets include the following: Cedar Grove Business Park, a 400,000-square-foot warehouse/distribution building currently under construction and expected to be completed next year. Louisville Industrial Park Building D is a 415,480-square-foot warehouse/distribution building currently under construction in the Airport submarket on National Turnpike. Commerce Crossings Center Nine, a 500,000-square-foot warehouse/distribution building currently under construction in the South submarket has been leased by Solectron Corporation. Salt River Business Park, developed by Lauth Property Group, has land to accommodate an additional 1.2 million square feet. These bulk facilities will give tenants new possibilities for metropolitan Louisville locations as well as new options in Bullitt County.

Lauth Property Group is a new developer to the area. They have been aggressive in developing in Bullitt County along the I-65 corridor for the past year. Its main project is Salt River Business Park in Shepherdsville off Cedar Grove Road. Building One is a 832,000-square-foot building that came on the market last year and is 75 percent occupied by Zappos.com. Building Two is proposed to be 520,000 square feet with expansion capability up to 1 million square feet. It is expected to be completed during the summer of next year.

Properties are attracting high-tech tenants such as Geek Squad, which just leased a 315,000-square-foot facility from ProLogis at Park 65. No one tenant is typically absorbing the space, but within the last 2 years UPS Supply Chain Solutions has purchased two speculative facilities totaling more than 1.3 million square feet.

Some recent industrial leases in the Louisville area include Thyssen Krupp’s 231,670 square feet in College Industrial Park Building 2; Konica Minolta’s 315,000 square feet in ProLogis Park 65; Major Progress’ 100,000 square feet in Commerce Crossings; Brightpoint’s 240,000 square feet in GlobalPort Building #1; HD Smith Wholesale Drug Company’s 120,000 square feet at GlobalPort; JOM Pharmaceutical Services’ 325,000 square feet in Settlers Point Business Park; United Parcel Service’s 155,000 square feet in ProLogis Park 65; and idX Corporation’s 320,000 square feet in River Ridge Commerce Center.

Warehouse/distribution rental rates are currently at approximately $3.50 per square foot net for Class A space in Louisville. The overall vacancy rate for the Louisville industrial market is 7.7 percent for all submarkets and property types, while warehouse/distribution vacancy is currently 8.6 percent.

The I-65 and I-64 corridors will be locations to watch in the future. As the development opportunities along I-65 in Bullitt County disappear, focus may move to I-64 toward Shelby County or north along I-65 into southern Indiana. Tenants prefer close proximity to UPS’ North American hub at Louisville International Airport. As the distance to the airport increases south along I-65, other options will be scrutinized and opportunities in southern Indiana will come into play as well as the I-64 and I-71 corridors.

Continued focus by developers along the I-65 corridor to meet the demands of customers will likely soon reach Elizabethtown, Kentucky, and thus may warrant closer investigation of other metro area submarkets which are equally as close to UPS and the Louisville International Airport. Barring any unexpected interruption in the market, the remainder of this year should see additional positive absorption and a corresponding decline in vacancy rates pushed higher by record construction completions during the first half of the year.

— Stephan F. Gray is with the industrial services group of Commercial Kentucky in Louisville, Kentucky.

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