SOUTHEAST SNAPSHOT, MARCH 2010

Louisville Industrial Market

While many industrial markets were brought to their knees in 2009, Louisville stood tall.  Despite the turbulent economic conditions, Louisville remained strong against its peers and cashed in on its good location, infrastructure and accessibility.  Stability in the Class A industrial market was demonstrated by positive year-end net absorption totaling approximately 1 million square feet.  This was due to notable lease transactions including Chegg.com’s 611,000-square-foot lease in Cedar Grove and Best Buy’s 600,000-square-foot lease at Cedar Grove II, to name but a few.

Vacancy rates have stabilized to the 9.8 percent mark and rents are starting to reach equilibrium after a period of decline. Tenant retention was top priority in 2009 with landlords battling to broker deals and often settling for below-market offers to maintain income stream. The mutually beneficial ‘blend and extend’ practice will continue to be featured this year as landlords strive to take back their power.

Some of the short-term decisions made in 2009 could have long-term implications — especially for landlords who may find themselves under water in the coming years.  We expect to see numerous landlords and their financing partners working to refinance non-performing debt in the next 2 to 3 years. 

Speculative development across the market dropped to zero last year, which was a blessing for the supply and demand ratio but left very few big box options on the market. Once Lauth’s 936,000-square-foot facility in Bullitt County, Kentucky, is acquired, we will see speculative development begin, perhaps towards the end of the year.

For the Louisville industrial market to continue its growth and thrive going forward, developers must find the next frontier and secure good, feasible land. There are still great land opportunities available to be explored across Bullitt County and Jeffersonville, Indiana. Additionally, the Greater Louisville municipalities and community, in general, must continue to support the expansion and success of the UPS World Port, which is an economic driver of the local economy and more specifically the life blood of the growing e-commerce distribution and supply-chain businesses. We anticipate the coming year to be stable with vacancy rates decreasing, rents continuing to level off and possibly rise, while tenants will continue to have the upper hand. By the end of the year, the Louisville Industrial market will be well on its way to leading the recovery across the Midwest.

— Brian Leonard is with Jones Lang LaSalle.

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