SOUTHEAST SNAPSHOT, DECEMBER 2010

Lexington Industrial Market

Lexington and Central Kentucky’s commercial real estate markets have experienced increased activity in several market segments. Retail vacancy has declined to less than 9 percent and rates have stabilized. Single-tenant, owner-occupied property sales have rebounded significantly in 2010. The suburban and central business district office markets continue to deal with slow absorption and tenant caution but lack of new construction should help boost the office market occupancy in 2011.

The suburban and central business district office markets have been the slowest to recover in Lexington but absorption has increased. There are several tenants that are considering leases in the 40,000- to 80,000-square-foot range that will have a significant impact on vacancy rates. Added to a reduction in new construction and an improving economy, both office markets will continue to improve during the next several months and should return to previous occupancy levels.

Retail rental rates stabilized in 2010. Overall vacancy rates decreased due to little new construction and the market not being over built. As the right opportunities become available, regional and national retailers are opening a limited number of stores as well as local start-up retailers are increasingly becoming more active.

Lexington’s industrial market has been stable during 2010, but leasing and sales activity slowed. Most current activity is in the repositioning of existing operations and the leasing of smaller facilities, flex and R&D space. Development land is available in industrial parks and select areas outside of parks. Older industrial facilities near Lexington’s central business district (CBD) are candidates for adaptive reuse or total redevelopment. G.F. Vaughn Tobacco Co. announced its intent to redevelop 30 acres of warehouses in the near future, although development details have not been released. The industrial market will remain stable in 2011 with absorption gradually increasing.

The Lexington investment market has been more active in 2010. Nationwide demand for single-tenant, net-leased investments has encouraged investors from outside the area to enter the market. Local investors have also increased their activity level for single-tenant investments. Sellers have adjusted prices to better match buyers’ expectations in the current economic environment, which has led to increased activity.

Multifamily projects were quiet in 2010 after many new complexes came on the market in 2009.  The only new construction has been in completing the final phases of projects started last year.  Vacancy rates have decreased, specifically in student housing, after the recent influx of new product.  2011 should see an increase in activity for new development with several projects being submitted for local government approval. 

Commercially zoned land is in short supply and re-zoning from residential to commercial use is difficult in Lexington. Adaptive re-use of existing sites is encouraged throughout the city. A local church purchased the approximately 30-acre former Lexington Mall property for approximately $10.23 million.

Overall the Lexington and Central Kentucky markets have come through the recession in better shape than many other areas of the country. Medical users, clinics and hospitals have remained strong drivers of new development activity through the recession. Lexington’s unique position as a retail, service, education, entertainment, employment and medical hub for central, southern and eastern Kentucky and the broad economic benefits it derives from this position continues to propel Lexington as an attractive location for commercial businesses and developments of all types.

— Dawn Bryant is a marketing director with NAI Issac in Lexington, Kentucky.

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