Lexington is well known for being the center of the horse racing industry, the home to the University of Kentucky and Kentucky's second largest city. A growing market that provides a stable service-based economy and an excellent quality of life for its residents, Lexington offers its businesses access to an expanded trade area that includes central, eastern and southeastern Kentucky. In addition, the controlled growth approach of the Lexington Fayette Urban County Government ensures that the character and uniqueness of the Lexington area will be preserved as future development continues within the approved Urban Services Area.

Retail

Retail continues to be a hotbed of activity within the Lexington market, specifically in the Nicholasville Road Corridor and the Hamburg Place development in east Lexington. Competition between regional and national retailers for available space within the primary regional shopping areas is as intense as the competition between developers for retail zoning for new projects. Nicholasville Road (US 27) continues to be the primary regional shopping corridor for Lexington and the expanded retail trade area it serves. The Hamburg development has emerged as a close second to Nicholasville Road in attracting local and regional shoppers.

Retail projects presently underway on Nicholasville Road include two projects north of the New Circle Road intersection. The projects, by local investor Jeff Ruttenberg, are a 20,000-square-foot expansion of Regency Centre (anchored by Kroger, TJ Maxx and Gateway Country) and the redevelopment of the former Medical Heights property. In addition, Rubloff Development is proceeding with its planned expansion of the Ruttenberg-owned Zandale Center.

With the lack of retail-zoned land on Nicholasville Road in Fayette County, developers and retailers are moving south on US 27 into Jessamine County for development opportunities. Presently, two large retail centers are underway. Local developer Pat Madden has begun construction on Commerce Center, a 300,000-square-foot center to be anchored by Kohl's and located just 2.5 miles from the intersection of Nicholasville Road and Man O' War Boulevard in Lexington. Nicholasville, Kentucky-based Bellerive Development has recently received zoning approval for a larger retail center to be located 1.5 miles south of the same intersection.

Future retail projects planned for the Nicholasville Road corridor include an expansion of Fayette Mall, Kentucky's second largest mall, by its new owner CBL & Associates Properties Inc., which recently purchased an adjacent 26-acre property from Verizon.

Retail development is also continuing in the Hamburg Place development located at the intersection of Man O' War Boulevard and Interstate 75. Atlanta-based developer Thomas Enterprises is completing a lifestyle component to its 1.1 million-square-foot power center, Hamburg Pavilion. Additionally, the Madden Family, the developer of Hamburg Place, is actively pre-leasing a 30-acre zoned retail site as well as the remaining retail outparcels on Man O' War Boulevard.

Neighborhood centers throughout Lexington continue to be strong, particularly those anchored by Kroger, the market's dominant grocer. Other notable retail projects include the redevelopment of Eastland Shopping Center, Lexington's first large shopping center, by local developer B.C. Wood Companies; the expansion of Kroger-anchored Beaumont Village by Bellerive Development; the redevelopment of Kroger-anchored Chinoe Center by NAI Isaac Commercial Properties; and the expansion of Lakeview Plaza by Lexington-based Caller Properties.

Office

Suburban office land continues to be in demand in Lexington with new projects occurring within the Beaumont, Hamburg and Wellington developments. These developments contain the majority of the zoned professional office lots presently available in Lexington.

In Beaumont Centre in southwest Lexington, local builder Schneider-Woods Development continues to have success in building office condominiums to complement the existing office projects within this mixed-use development.

Three new office projects were recently announced within the Hamburg Place development. Miller-Valentine Realty of Dayton, Ohio, has announced it has begun construction of a 75,000-square-foot speculative Class A office building in a joint venture with the Madden Family. Louisville-based Anderson-Steier Development has announced that they are developing Hamburg's first office condominium project. Corbin, Kentucky-based First Corbin LLC is nearing completion of an owner-occupied office building on Sir Barton Way whose lead user is Lexington's newest bank, First National Bank of Lexington.

Within the Wellington Development, located in south Lexington, local contractor The Hargett Corporation is completing construction of the Wellington Office Condominiums and actively pre-leasing space for future office buildings within this development.

Existing suburban office projects have fared well in 2002 despite a decrease in the demand for Class A space in most size ranges. Occupancy levels have remained strong and rental rates have not been reduced.

Recent activity in the central business district (CBD) has been dominated by law, accounting and engineering firms and financial institutions. The CBD has maintained a vacancy rate of approximately 11 percent.

The new $62.5 million Courthouse Complex that includes the new District and Circuit Court buildings encompasses 250,000 square feet, including seven courtrooms for District Court and nine for Circuit Court. The five-story courthouses are designed to be similar in appearance; however, the Circuit Court building to the south will be distinguished by its circular bay and entrance portico in contrast to the rectangular bay and entrance portico of the District Court building.

Behind the District Court building there is a new seven-level parking garage, which includes approximately 520 parking spaces for the staff and the public.

Hospitality

The last full-service hotel to open in Lexington was the Embassy Suites on Newtown Pike, which opened in 2000. Hotel activity in 2001 and the first half of 2002 was primarily limited to renovations. This segment is starting to move again as Louisville-based Musselman Hotels has two new Marriott branded hotel projects underway in the Lexington market. They have a Residence Inn under construction in the Hamburg development and have finalized plans for a SpringHill Suites to be located on South Broadway near downtown and the University of Kentucky. Also in the campus area, the University Inn is presently in the midst of an expansion, which will approximately double its size, and plans are underway for a new limited service national brand hotel to be located near campus on Virginia Avenue.

Industrial

Lexington's industrial market primarily consists of distribution and light industrial space. Interstates 75 and 64 intersect in north Lexington and provide access to 70 percent of the total U.S. population within a day's drive of Lexington. Presently, Lexington has an ample supply of larger blocks of space (25,000 to 100,000 square feet) with an under-supply of space in the 10,000 square feet and under range.

The proximity to I-75/64, the continued strength of Toyota Motor Manufacturing, which is located in Georgetown, Kentucky, approximately 18 miles north, and the auto-related suppliers it attracts should ensure that the demand for space within Lexington's north and northwest industrial corridors rebounds in the next 6 to 12 months.

Kentucky is currently ranked second in the U.S. for overall success in attracting new and expanded industries for the period 1999 to 2001, according to Site Selection magazine's annual Governor's Cup scoreboard. Kentucky's fastest growing industry sectors from 1994 to 1999 were transportation (59.3 percent), construction (52.4 percent) and services (47.9 percent). Kentucky ranks third in the country in total light vehicle production. Four of the top 10 cars and trucks in U.S. production, as well as the Corvette, are made in Kentucky.

Bruce R. Isaac is senior vice president and Paul Ray Smith Jr. is executive vice president of NAI Isaac Commercial Properties in Lexington, Kentucky.


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