Louisville is well known for being home to such greats as Muhammad Ali, the Kentucky Derby and Louisville Slugger Bats. However, Greater Louisville is also one of the country's most business-friendly communities. In addition to being the home to prominent corporations like UPS's international air hub, two Ford assembly plants, Papa John's, Humana, General Electric, Brown-Forman, Brown-Williamson and Tricon Global Restaurants, Louisville provides worldwide medical leadership, especially in the areas of hand surgery, organ transplants, eye disease and burn treatment.

The passage of merged city/county governments in 2000 placed Louisville in the top 25 cities in America. With an MSA of over 1 million (1999), Louisville is certainly making significant impact across numerous business lines.

Industrial

Louisville has seen dramatic growth in logistics and distribution. In 2000, the industrial market continued its trend of high occupancy levels. Demand for industrial space outpaced supply with positive leasing activity resulting in occupancies exceeding 95 percent in several submarkets. Louisville is rapidly becoming a highly sought after market for such national developers as ProLogis Trust and Catellus Development Corporation. Corporations such as Stride Rite, Universal Coach, Electronics Arts (EA) and Guess? Inc. have selected Louisville for national distributions centers. Steady performance and low industrial vacancy rates have created a surge in speculative construction and currently, approximately 4 million square feet of new bulk distribution space is planned, under construction or completed.

Jefferson Riverport International, a 2,000-acre, county-owned planned industrial complex, is home to 110 businesses. Over the past several years, Riverport has been the fastest growing industrial submarket, approaching 11 million square feet. The majority of recent construction has been "big box" bulk distribution facilities serving clients such as Guess?, Inc., Stride Rite, Circuit City and Ann Taylor. In Riverport Phase IV, the asking price for fully infrastructured sites is $75,000 per acre.

The Southside/Airport submarket is the city's largest and has traditionally maintained the lowest vacancy rate. This location has excellent access to Interstates 65 and 265 and is near the airport and UPS's Air Cargo Hub. This submarket consists primarily of bulk warehouse space designed for distribution and light manufacturing. Approximately 9 million square feet of Class A and B quality space is 95 percent leased. Only the lack of suitable sites for development limits the expansion of this submarket.

Future development is occurring farther south along I-65 into Bullitt County, which has emerged as the "go to" destination of industrial/distribution development. Developers have concentrated their interest in interchange sites, offering direct access to I-65, the major north-south corridor through Louisville. Cedar Grove Business Park has a 400,000-square-foot spec distribution facility owned by Atlanta-based Robert Patillo Properties, and a 382,000-square-foot spec building owned by Catellus Development Corporation. Catellus' project is designed to accommodate over 900,000 square feet. ProLogis Trust has commenced a 77-acre master planned park for two spec bulk warehouse buildings totaling 1.2 million square feet, and Synergy Logistics Development has started construction on the first building of a 900,000-square-foot logistics center at the Brooks Road Interchange in Bullitt County.

Office

Steady corporate growth combined with patient speculative development has positioned Louisville for office expansion in the coming months. Approximately one-half of Louisville's 17 million square feet of office space is in the suburban market. The most recent developments and much of the planned new space are located in the eastern suburbs between I-71 and I-64.

The Hurstbourne Parkway corridor has been a hotbed of activity. In Hurstbourne Green, local developer Fenley Real Estate has developed and leased approximately 300,000 square feet in six Corporate Campus buildings. This office park, originally developed by the county government to attract companies such as UPS, is substantially built-out. Across Hurstbourne Parkway, Faulkner Hinton and Associates has developed Forest Green, an award-winning 120-acre mixed-use project incorporating Class A office, retail and residential components around a 40-acre greenway complete with walking paths and a spring-fed creek. The first of two 174,000-square-foot, six-story buildings was pre-leased in 2000. The second building will be available August 2001 and early interest exceeds the available square footage.

Eastpoint, located in the far-eastern portion of the county adjacent to I-265, has seen a wealth of new and proposed office construction. Lightyear Communications has occupied its 75,000-square-foot headquarters and Underwriters Safety & Claims is constructing a new 53,000-square-foot building. The first of three planned office buildings by Fenley Real Estate is under construction in its Triton office campus. Progressive Casualty is taking 18,000 square feet of the 100,000-square-foot building. Another 100,000-square-foot building and a third 150,000-square-foot building are planned.

To the north at the I-265 and I-71 interchange, Fenley Real Estate has begun construction on its $90 million Olympia Park Place, a four building office campus within walking distance of the new Bayer Properties retail lifestyle center. This 105-acre mixed-use project includes office, retail, hotels and high-end apartments. Moving west in the same submarket, Fenley has completed construction of its third Class A building at Brownsboro Road and Lime Kiln Lane. Building C, which provides executive parking on the lower level, has secured Glenview Trust and is actively negotiating with other tenants for the remaining 65,000 square feet.

In southern Jefferson County, Capstone Realty Inc. has finalized a deal with Tricon Global Restaurants in a $13,000,000, 150,000-square-foot building at its 240-acre Commerce Crossings Business Park. Insight Communications will consolidate about 550 employees into one location when it occupies a 90,000-square-foot building later this summer. Commerce Crossings, which began as a distribution and logistics park, has added these office properties and an additional 118,000-square-foot speculative office building, which is 50 percent leased.

The central business district has success stories as well. The eMain USA project has been well received locally and has attracted national attention. This redevelopment project and the new Slugger Baseball Field, both near the heart of the riverfront development, have created an exciting atmosphere for high technology startups. Strategic partnerships among small companies and the necessity of outsourcing services are keys to the success of the project. Further north on Main Street, Fenley Real Estate broke ground on April 26th for a new 90,000-square-foot office building at 614 W. Main. This project, adjacent to the Doe-Anderson Building, will be anchored by Greater Louisville Inc., which has committed to 18,000 square feet. The building is scheduled for completion in early 2002. This project is noteworthy because it represents the first major speculative office building in Downtown Louisville in the past 10 years. Downtown vacancy levels remain low at approximately 6.5 percent.

Retail

Retail activity in Louisville remains strong for national and regional tenants. Several national retailers are establishing footholds in the Louisville market as evidenced by deals signed in 2000 and 2001. Best Buy has entered the market with two stores, and Galyans will open its first Louisville store in fall 2001. Stonybrook South, located at Six Mile Lane and South Hurstbourne Parkway, boasts the first Marshall's store for Louisville as well as Dicks Sporting Goods' third store in the market. Bayer Properties of Birmingham, Alabama, is developing The Summit Louisville, a 350,000-square-foot lifestyle center, anchored by Barnes & Noble, Bed, Bath & Beyond, Old Navy, Gap and several specialty restaurants. Many anchors occupying space in Bayer's Birmingham development will be duplicated in the center, and it will be 85 percent leased when it opens in November.

Wal-Mart has received approval for a new superstore located in southeast Jefferson County. A local developer is planning a 180,000-square-foot shopping center, with several outparcels adjacent to the Wal-Mart. Kohl's is adding a third store to the market on Preston Highway, near Mud Lane. Lowe's has acquired a 20-acre site, just north of Kohl's site on Preston Highway. However, even with vacancy rates below 10 percent in most trade areas, several retailers have downsized or closed stores in the Louisville market including Frank's Nursery & Crafts, HQ and Old America. National Amusement has put its plans for an 80,000-square-foot stadium seating theatre on hold until late 2002.

One of the area's most significant developments, Norton Commons, has been in the works for over four years. Groundbreaking for the 600-acre traditional neighborhood development is scheduled for this summer. Triad Development is the managing developer for Norton Commons, which is being built on a former farm owned by the Norton family. Approximatly 3,000 homes - multifamily townhomes and apartments, as well as single-family homes - will surround a mixed-use town center. The town center will have 200,000 square feet of retail and 350,000 square feet of office space. Approximately 160 acres will be dedicated to civic or green space, such as lakes and parks.

David Tomes, vice president of Triad Properties, says the office components will be ideal spaces for corporate headquarters, and there has been interest from several tenants for the retail portion.

Mike Watkins of Duany Plater-Zyberk & Company, architects and town planners, says one unique aspect of the project is the network of streets that vary in character and capacity. "People will have a choice of walking or driving," he says. "It will be a five minute walk from the town center out to the homes."

In general, Louisville's retail climate is active with interest running higher than space availability. Rates are increasing at a steady pace with rental rates ranging from $12 to $15 per square foot for spaces under 10,000 square feet, and rental rates ranging from $10 to $12 for big box spaces of 25,000 square feet or more.

Investment

Both institutional and private investors have been active in the Louisville market over the past 24 months. Institutional investors and REITS have aggressively pursued office product in Louisville's CBD. Four of the six Class A office buildings, Meidinger Tower (331,054 square feet), Brown & Williamson Tower (346,213 square feet), Citizens Plaza (608,587 square feet) and National City Tower (723,300 square feet), have changed hands within that timeframe. The suburban market remains active from a development standpoint, but no major sale transactions have occurred in the past year.

Institutional investors have been and remain very attracted to Louisville's industrial market. PM Realty has purchased the 600,000-square-foot Guess? distribution center and Cohen Asset Management purchased the Yokohama Tire facility of 309,000 square feet. Kansas City Life just completed a transaction involving the 102,500-square-foot Mediacopy distribution center.

Triple net (NNN) leased properties, primarily drug stores and restaurants, have been purchased by private investors. Although major grocery anchored retail shopping centers have not had a significant amount of activity in recent years, some non-grocery anchored centers have been sold to private investors.

As with the national market, the demand for multifamily product remains high in Louisville. Although Camden and Equity Residential have sold some of their holdings in the Louisville market, the demand for multi-family investments remains higher than available supply.

David W. Nicklies is chief executive officer of CB Richard Ellis/Nicklies in Louisville, Kentucky.


©2001 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.