SOUTHEAST SNAPSHOT, NOVEMBER 2008

Louisville Industrial Market

The Louisville industrial market continues to show resiliency despite a sluggish national economy. Rebounding from disappointing numbers in 2007, the year’s sale and leasing activity and overall net absorption has been impressive. Sale and leasing activity should eclipse 2007 numbers by 25 percent, with a number approximating 6 million square feet. Perhaps more impressive is the year-over-year net absorption figure, which shows an increase of four times or more than 4 million square feet.

With increased sales and leasing activity comes lower vacancy. Last year, overall vacancy stood at 9.3 percent. Comparatively, the year-to-date, third-quarter overall vacancy has decreased to 8.7 percent. Interestingly, the Bullitt and Southern Indiana submarkets are poised for increased leasing activity but have current vacancy rates of 13.4 percent and 17.7 percent, respectively. All other submarkets currently have less than 8.4 percent vacancy.

The construction pipeline offers an even more detailed picture of our market. Significant development is under way and will be delivered by year end in both the Bullitt and Southern Indiana submarkets. In Bullitt, Lauth will be completing its 936,000-square-foot speculative facility, Salt River Two, the largest speculative facility ever built in Kentucky. This exciting project is a stone’s throw from Interstate 65 and only 12 miles from Louisville.

Since 2002, the Bullitt submarket has been the area’s fastest growing submarket. Its proximity to UPS and I-65 has fueled both users and developers alike. It is home to a variety of users with household names, such as Linens ’n Things, Alcoa, Zappos, Geek Squad, Bergen Brunswig and Johnson & Johnson as well as not so well-known names, such as Alliance Entertainment, Global Sports Inc., Medline and Gordon Food Service. The developer list is impressive as well. ProLogis Trust, Lauth and the former Patillo Properties as well as local developers like Flynn Brothers Contracting, Cross Dock Development and Louisville Logistics Centre have provided speculative and build-to-suit properties housing approximately 3,000 workers within about 8 million square feet developed almost entirely since 2002.

In Southern Indiana at River Ridge, two projects are set for completion by December totaling 1.05 million square feet. Local developers Capstone Realty and Cross Dock Development are offering projects of 607,500 square feet and 450,535 square feet, respectively. The two are in close proximity to I-65 and are minutes from Louisville.

Commercial Kentucky, located in Louisville and an affiliate of Cushman & Wakefield, began offering detailed research on the Southern Indiana submarket this year because of the significant and successful speculative bulk development at River Ridge Commerce Center. River Ridge is a 6,000-acre business park owned and managed by the River Ridge Development Authority. The authority’s purpose, which was initiated by local commissioners, is to develop what was an army ammunitions plant that made gun powder during World War II and the wars in Korea and Vietnam. Although still in its infancy, speculative space of approximately 1 million square feet has been leased to companies like IDX-Louisville, a leader in custom millwork and retail fixtures, Asus Technology Services, a computer manufacturer, and Clarcor, an air filter manufacturer that will occupy 450,000 square feet. Capstone Realty and Cross Dock Development have been the park’s first significant speculators, but there will be many more in the future.

Other submarkets in the area are not seeing the expansive development that is occurring in the Bullitt and Southern Indiana markets. This lack of development has more to do with available ground than anything else. The east submarket caters toward upscale mixed-use developments and parks with relative pricing higher than that within distribution-oriented parks. The south submarket is a more mature market offering fewer development opportunities. However, ING Clarion is currently expanding a new and recently leased 415,000-square-foot project by 254,000 square feet just west of I-65 and the Louisville International Airport. The west/southwest and central submarkets are also more mature. In the former, the hottest submarket in the 1990s, Jefferson Riverport International has a 150,000-square-foot build-to-suit project underway for Texas-based Victory Packaging. The latter submarket must focus on redevelopment projects as Louisville’s inner city is essentially fully developed.

These aforementioned projects underscore not only the value placed upon Louisville’s location — 70 percent of our nations’ population is within a day’s drive of the city — but also, given UPS Worldport’s location here, the international market. Developers are certainly bullish on Louisville, and Louisville has continued to perform admirably in both an expanding and contracting national economy.

Louisville’s I-65 corridor is flush with available bulk space at competitive prices. As development opportunities along the corridor become fewer and farther between, expect additional activity near the other corridors in the metro area, interstates 64 and 71. Access in and around Louisville is efficient in those corridors, and access to UPS Worldport and Louisville International Airport is quick. From some of the farthest reaches of the metro area, Louisville International Airport is only 30 minutes away. Louisville is geographically well positioned and poised for future growth.

— Stephan F. Gray is a broker in the Industrial Services Group at Louisville-based Commercial Kentucky.

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