SOUTHEAST SNAPSHOT, FEBRUARY 2007

Lexington, Kentucky Industrial Market

Lexington’s industrial market primarily consists of distribution, light industrial and more recently high tech/R&D. Lexington’s status as a service and healthcare hub for eastern, central and southern Kentucky shapes the market. Access to Lexington from surrounding communities and states is superior due to Lexington’s location at the convergence of Interstates 75 and 64. As a result, the majority of Lexington’s industrial facilities are located North and Northwest of the central business district (CBD) to take advantage of the interstates.

Last year, the industrial market was stable with a slightly declining overall vacancy of approximately 21 percent. Larger bulk warehouse facilities experience longer marketing times with a vacancy rate of approximately 27 percent, while the market for smaller owner-occupied or flex facilities tends to be active with a vacancy of approximately 12 percent. Recently low interest rates and a trend toward construction of more use-specific facilities have contributed to the activity among light industrial users. Representative lease rates in the Lexington industrial market are $3 to $4.50 per square foot NNN for bulk warehousing, $3.75 to $6 per square foot NNN for manufacturing, $6 to $10 per square foot NNN for flex space and $8 to $16 per square foot NNN for high tech/R&D.

More challenging access to the interstates and limited availability of raw land for commercial development has made older industrial facilities in close proximity to Lexington’s CBD targets for redevelopment. Redevelopment and revitalization of the city core has been a growing focus for city officials for several years. Steps have been taken to encourage urban infill as an alternative to limit development of the area’s horse farms. Examples of redevelopment with a change of use from industrial include a recent conversion of the former Southwestern Tobacco Co. to the Lorillard Lofts and Ohio developer Polaris Real Estate Equities’ upcoming total redevelopment of the former Shelburne Tobacco Warehouse site into Shelburne Plaza, an $80 million mixed-use project. Demolition at Shelburne has been completed and construction is expected to span the next 2 to 3 years. An example of a potential redevelopment opportunity that may remain as an industrial use is the existing Blue Grass Stockyard. The stockyard recently announced a desire to relocate to a neighboring county, which would leave an approximately 10-acre redevelopment site.

The city has reserved a few large tracts of land near I-75 for economic development with a focus on industrial. These tracts of land are currently undeveloped and still privately owned; however, they have been designated for economic development in the city’s current comprehensive plan. There have been a few unsuccessful attempts by local developers to get the city to allow residential development in these areas. Another example of the city’s commitment to economic development involving industrial uses surrounds the announcement of Central Baptist Hospital’s desire to relocate from its current location on the south side of the CBD to an approximately 129-acre tract of land near I-75. This tract of land is located in one of the designated economic development areas and a medical campus would not be a conforming use under the current zoning rules and regulations. A final decision on this proposed rezoning from industrial will be reached in the coming years.

Lexington city officials and the University of Kentucky continue to promote Lexington as an attractive location for high tech and R&D companies. Activity has recently increased at the University of Kentucky’s Coldstream Research Campus on the north side of Lexington near I-75. Last year saw the completion of the University’s Center for Pharmaceutical Science and Technology, which is a 20,000-square-foot sterile pharmaceutical manufacturing facility. Ground breaking also occurred for the LexHold International Center for Technological Innovation. This multi-tenant facility is being developed in cooperation with the University of Kentucky by Michigan developer Kale Roscoe. When complete in late this year, it will consist of two multistory buildings totaling approximately 350,000 square feet. Preleasing is underway on LexHold, with approximately half of the available space already reserved.  

The industrial market will continue to be stable this year with steady absorption of the limited remaining industrial zoned development land and growing interest in redevelopment of older industrial properties.

— John Miller is a broker associate with NAI Isaac Commercial Properties in Lexington, Kentucky.


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