The big news for Louisville in 2003 was the merger of Louisville and Jefferson County governments in January, thereby creating the 16th largest city in the United States. In addition, the U.S. Office of Management and Budget recently expanded the Louisville metropolitan statistical area (MSA) from seven counties to 13, raising the MSA population by 15 percent to 1.2 million people. Consequently, the Louisville metro profile has begun to appear on the “radar screen” more often with respect to site selection, investment decisions and corporate relocations.

Despite the somewhat sluggish national economy, construction activity in the metro area has remained relatively strong. Ongoing projects in the area include the $338 million renovation of the McAlpine lock and dam on the Ohio River and the $120 million renovation of historic Churchill Downs, home of the Kentucky Derby. The most ambitious capital project in the fabled racetrack’s 129-year history includes renovation of the clubhouse and grandstand, adding new luxury suites and new entrances to the track.

Downtown Development

Ground was recently broken for a new $110 million, 18-story, 634-room Marriott Convention Center Hotel just south of the newly expanded Louisville International Convention Center. Scheduled for completion in 2005, the Marriott will serve as the major convention hotel, significantly enhancing Louisville’s ability to attract major convention business.

Work is also well underway on the Muhammad Ali Center at Sixth Street and River Road. Scheduled for completion in 2005, the center will tell the story of the 20th century’s most remarkable athlete.

Elsewhere in the West Main Street Historic District, work continues on the Frazier Historical Arms Museum. The $20 million facility, when completed in 2005, will showcase the history of armaments throughout the centuries, including the collection of British arms and armor in conjunction with Britain’s Royal Armories.

Office and Residential

As the Louisville office market approaches 18 million square feet, the construction pipeline has begun to empty, relieving pressure on vacancy rates in the face of sluggish demand and weakened job growth. While the overall central business district vacancy rate has declined somewhat from the year-end 2002 level, the reverse is true in the suburban market where the overall vacancy rate increased during the first 6 months of 2003. The Class A suburban market continues to grapple with a vacancy rate that has hovered near 25 percent for the past 18 months.

While new construction completions are down considerably over that same period, year-to-date Class A absorption is only 54,326 square feet compared to 260,619 square feet absorbed during the first 6 months of 2002. Rental rates have held firm but the dearth of new tenants has forced landlords to offer more and more concessions both to new and existing tenants in the marketplace. Few new projects are expected over the next 12 months as developers focus on marketing existing space and backfilling vacancies.

With more than 51 percent of inventory in the CBD, Louisville’s downtown continues to be the focal point for the metropolitan area and the region. Efforts to revitalize the CBD have met great success as evidenced by the almost $400 million in construction projects currently underway in the 104-block area. Construction completions in 2002 introduced 272,245 square feet of new office space in the CBD. An additional 76,551 square feet is scheduled for completion in fall 2003 at Preston and Main streets. Known as Preston Pointe, the project has captured the imagination of the entire community as the Potter & Cox Architects-inspired design dominates the skyline along East Main Street, adjacent to Louisville’s Waterfront Park and Slugger Field. In addition to more than 76,500 square feet of office space, Preston Pointe also features four luxury townhouses, situated under the dramatic swooping roofline. All four residential units were sold prior to construction, underscoring the demand for residential units in the downtown area.

Further evidence of the growing demand for residential product is the 22-story Waterfront Park Place development now under construction at the southwest corner of Floyd and Witherspoon. Featuring 76 luxury condominiums, the project offers panoramic views of the Ohio River to the north and Louisville’s downtown skyline to the south and west. Scheduled for completion in 2004, more than 25 percent of the units are already under contract.

Industrial

The Louisville industrial market consists of 95.79 million square feet in nearly 1,500 buildings of 10,000 square feet or larger. Construction completions of more than 8 million square feet since 1999 added measurably to the inventory, particularly with respect to bulk warehousing and distribution facilities constructed throughout the metropolitan area. While construction activity has slowed considerably since 2001, construction completions have increased industrial vacancy rates across the board, not counting any significant absorption that occurred during the first 6 months of 2003. Year-to-date industrial absorption of 70,950 square feet pales in comparison to the 2.26 million square feet absorbed in the first half of 2002.

Despite the apparent lull in industrial activity, several new projects are underway, including Main Street Realty’s 517,000-square-foot distribution facility known as Louisville Metro Commerce Center located on the Outer Loop just south of Louisville’s International Airport. Scheduled for completion in early 2004, the project is designed to capture a major distribution/fulfillment center requirement in conjunction with the recently expanded $1.1 billion, 4 million-square-foot UPS Worldport sorting hub at the airport.

With more than 4 million square feet of top quality warehouse/distribution facilities currently available, the industrial development community is anxiously awaiting signs that the national economy may soon be improving. To the extent that any economic recovery is postponed until 2004, expect an increase in industrial vacancy rates and spirited competition for those few tenants in the marketplace.

Retail

Fourth Street Live continues to be the focal point of Louisville’s downtown retail and entertainment scene. The Cordish Company of Baltimore has partnered with the city to develop this signature retail and entertainment center in the heart of the CBD. The $70 million renovation is underway and scheduled for completion in late 2004 to early 2005. Cordish already has announced Borders Books & Music, Hard Rock Café and McFadden’s as major anchor tenants with additional announcements expected as renovations near completion.

Jamie Schaefer is director of market research for Grubb & Ellis|Commercial Kentucky Inc. in Louisville.

 

MORE ON LOUISVILLE’S RETAIL MARKET Retail investment activity in Louisville illustrates the fact that secondary markets are heating up. National retailer Whole Foods is planning to enter the Louisville market with a 40,000-square-foot store, which will include an eat-in café. Scheduled to open in early 2004, the grocer will occupy the former Drug Emporium space at Bluegrass Manor on Shelbyville Road. Off Broadway Shoe Warehouse also is coming to Louisville. The retailer is negotiating to open its first store in Kentucky in a new 22,400-square-foot building in the second phase of the Shelbyville Road Plaza. Off Broadway Shoe Warehouse will be located next to Wild Oats Natural Marketplace and is scheduled to open first quarter 2004. In addition to Off Broadway Shoe Warehouse, Phase II will include an additional 50,000 to 60,000 square feet of retail space. Gold’s Gym is adding a location in Louisville at the former Furrow Building Materials site on Dixie Highway. Pending a change in zoning, a local Gold’s Gym franchise will open a 38,000-square-foot, state-of-the-art gym facility by January 1. A wholesale grocer may join Gold’s Gym at this site, if the developer is successful in acquiring additional land, where a freestanding store would be built. The area is rebounding due to its location near Jefferson Riverport International, a 1,810-acre industrial park and public port, located in southwest Jefferson County. The former American Air Filter property on Central Avenue could become the home for the University of Louisville’s new baseball stadium, a practice gymnasium and fitness center. Faulkner Hinton & Associates is leasing the 10-acre site to the university and plans to develop a shopping center on 12 acres across the street from the complex. The shopping center will be called Central Station and may possibly be anchored by Kroger. Commerce Center I in Louisville’s West End is adding retail development to the existing office/warehouse complex. A 4,200-square-foot, freestanding Rent-A-Center and a gas station/convenience store are scheduled to open by October 1. An 11,000- to 15,000-square-foot grocer also is being considered. The area is experiencing growth due to nearby residential and commercial development. The Taylorsville Road corridor in Jeffersontown is undergoing $200,000 worth of improvements. The city has expressed a commitment to enhance the Taylorsville Road corridor by working with developers. Improvements so far include renovation of the Jeffersontown Shopping Center and new commercial development at Six Mile Lane. Recent acquisitions include Bluegrass Manor shopping center and Oxmoor Center. An affiliate of Icon Properties purchased the 140,000-square-foot Bluegrass Manor from Plaza Centers Inc. of Louisville for $12 million. The center was built in 1967 and is located on 11 acres. In addition to a new Whole Foods, significant tenants include Toys ‘R’ Us and Rhodes Furniture. Talmadge Hocker, president of Hocker & Associates, and several family members recently acquired Oxmoor Center. The 960,000-square-foot mall is anchored by Lazarus, Galyan’s Trading Company and Iowa-based Von Maur department store, which will open September 2003. Hocker bought Oxmoor Center from Beargrass Corporation for an undisclosed amount. — Lynn Leonard is vice president - marketing with NewBridge Retail Advisors.

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