While CBD office markets across the Southeast have struggled in the last few years, some are showing signs of improvement and experiencing bold new downtown developments.

The State of the Market

The 30,000-square-foot Theatre Building, located just off of Fourth Street next to the Palace Theatre in Louisville, Kentucky, has been renovated and is being sold as office and retail condominium units.

Louisville, Kentucky’s CBD office market currently has approximately 9 million square feet of office space, and 3.5 million square feet of it is Class A, according to Dick Dinsmore, president of The Dinsmore Company.

The current overall vacancy rate for Louisville’s CBD office market is 20 percent. However, the Class A vacancy rate is 10 percent, and rental rates range from $12 to $14 per square foot for Class B space and $18 to $20 per square foot for Class A space.

“The most significant thing that’s happened recently in Louisville,” says Dinsmore, “is that we had a net positive absorption in the first quarter of this year. This is the first time we’ve had a quarter of positive absorption in 2 years.” He says the market is beginning to firm up, allowing the Class A vacancy rate to fall a little bit for the first time in recent years.

According to Reis’ first quarter 2003 SubmarketStats, Columbia, South Carolina’s CBD office market had a vacancy rate of 10.4 percent. This is compared to 13.2 percent for the overall Columbia market. Newer buildings built since 1990 are experiencing the lowest vacancy level of 4.5 percent, while the vacancy rate of buildings built before 1970 is more than 20 percent, according to Michael Dodds, managing director at Integra Realty Resources. The current average asking rent, according to Reis, is $16.30 per square foot. This is only slightly higher than the average rate in 1999.

In the Works

The major new development in Columbia is Meridian, a $64 million, 17-story, 350,000-square-foot office building located at 1320 Main St. It will be Columbia’s first high-rise in more than 10 years, and it is expected to be complete in the second quarter of 2004. Holder Properties is developing the building and Nelson Mullins Riley & Scarborough will anchor it, leasing approximately 150,000 square feet. Dodds says there are some questions concerning the remaining 200,000 square feet. “With a vacancy rate over 10 percent and continued lay-offs, many are wondering where the tenants will come from,” says Dodds.

Louisville’s most significant CBD office development in the last couple of years is an 84,000-square-foot office building at 614 W. Main St. developed by The Fenley Group. Construction is complete, and the anchor tenant is Greater Louisville Inc. According to Dinsmore, 20,000 square feet has been leased and 64,000 square feet is still available. “This is the newest, most contemporary office building downtown,” he says.

Cobalt Marketplace on Market Street is a 45,000-square-foot mixed-use development that will include both retail and office space. This renovation of the old Schiller Hardware building will be completed in April 2004, and Cobalt Ventures is the developer. Another mixed-use project under construction is Preston Pointe on Main Street. This development will include 75,000 square feet of retail, office and residential space.

The Theatre Building, located just off of Fourth Street next to the Palace Theatre, is a 30,000-square-foot office development that has been completely renovated and is now on the national register of historic places, according to Dinsmore. Originally built in the mid-1920s in the Beaux Arts tradition with art deco styling, the building’s façade is entirely composed of terra cotta and glazed tile that can’t be found at any other structure of comparable size in Louisville.

According to Dinsmore, the building is being sold as office and retail condominium units. About three-fourths, or 23,000 square feet, is office space. “There is currently 16,000 square feet available,” says Dinsmore. The owner of the property is Lichtefeld Properties.

Looking Ahead

“A trend that we are seeing currently in Columbia is that some of the older office buildings are being converted to residential uses,” says Dodds. He says that downtown residential developer Tom Prioreschi has plans for 75 apartments in the historic Barringer Building. Floors three through 12 in the building will be converted to apartments, while the first two floors will remain commercial.

This year, Louisville had a quarter of positive absorption, which is a reversal of the past 2 years, according to Dinsmore. He says that while there is little new or major office development either underway or on the boards in Louisville, there is quite a bit of development activity in the mixed-use and hotel/residential arenas.

“With no major construction on the horizon in the CBD office market, and hopefully an economic recovery that is starting to take hold, I would expect the market to continue to firm over the next several months,” says Dinsmore.

“I think Louisville is making a lot of progress toward developing a vibrant downtown area with residential, retail and office development,” Dinsmore adds. “It’s a nice eclectic mix, and I think the momentum is in a positive direction.”


©2003 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.