CITY HIGHLIGHT, SEPTEMBER 2004

ACTIVE YEAR FOR LOUISVILLE
Grubb & Ellis|Commercial Kentucky, Inc.

Marriott Hotel is developing a convention hotel in Louisville’s central business district.

Louisville, Kentucky’s central business district is awash in major new developments from destination entertainment venues to major convention hotels, luxury high-rise residential developments and a seemingly ever-expanding Waterfront Park.

Leading the charge is 4th Street Live!, an upscale entertainment venue in the heart of the city, developed and dedicated this summer by The Cordish Company of Baltimore. The complex includes Hard Rock Café, Red Star Tavern, T.G.I. Friday’s and Borders Books & Music. Just blocks away, Marriott Hotel is completing a 617-room convention hotel, to be connected by pedestrian way to the recently expanded Kentucky International Convention Center. Scheduled to open by 2005 Kentucky Derby in May, the hotel is expected to boost Louisville’s rapidly expanding tourist, visitor and convention industry.

The 22-story Waterfront Park Plaza, consisting of 76 luxury residential condominiums and 20,000 square feet of retail, is scheduled to open this fall with over 50 percent of the units already committed. Additional market-rate housing initiatives are underway, including a Hope VI federal housing grant to redevelop a six-block area adjacent to the Louisville Medical Center.

While the pace of development in the suburban market pales somewhat in comparison to the CBD, several major projects are currently underway. The Fenley Real Estate Group recently broke ground on a 240,000-square-foot build-to-suit for Anthem Insurance of Kentucky at the Eastpoint Business Center in eastern Jefferson County. Koll Development Company of Dallas will complete a 175,000-square-foot build-to-suit for Citigroup at Blankenbaker Crossings later this year.

Overall vacancy rates in the CBD have stabilized, while suburban vacancy rates are declining as net absorption exceeds new construction completions. Both leasing activity and positive net absorption are anticipated for the balance of 2004, perhaps giving rise to renewed interest in new construction as tenants continue to demand more sophisticated product, larger floor plates and above-standard parking ratios.

— Phillip Scherer III, president, and Jamie Schaefer, research services, Grubb & Ellis|Commercial Kentucky, Inc.

Industrial

The Louisville industrial market continues to interest institutional developers as well smaller regional and local developers. ProLogis recently has begun construction on a 437,000-square-foot speculative facility along Interstate 65, the hottest developing corridor in the region. In the same corridor, Main Street Realty, a local developer, has just completed Louisville Metro Commerce Center, a 517,000-square-foot speculative facility. Nationwide Insurance has broken ground on its 231,000-square-foot speculative facility.

These developers realize Louisville’s potential and its strategic location for large distribution centers. They acknowledge the potential of the area’s largest employer, United Parcel Service, UPS Worldport and Supply Chain Solutions. They also recognize the state of Kentucky’s business incentive programs, which have the ability to attract and retain new business to the area.

Louisville had an overall vacancy rate that stood at 10.9 percent at the end of second quarter 2004. This number has fluctuated somewhat over the last 2 years but is only 0.9 percent higher than it was at the end of second quarter 2002. Despite the growing vacancy rate, the market has experienced a spike in sales and leasing activity and the aforementioned speculative facilities occupy a niche with relatively low vacancy, since Class A speculative facilities in excess of 200,000 square feet are rare finds in the Louisville market.

Louisville has seen its share of bulk industrial transactions in recent years. Companies such as GUESS? Inc., Plastech, Linens ’n Things, Union Tools, Alcoa, Tennant, PPG and Dohmen Distribution all have found the state of Kentucky, mainly the city of Louisville, as the right location. These companies enjoy some of the most efficient, automated and cost-effective facilities offered anywhere.

Louisville’s developer partners and its impressive tenant base have continued their commitment to industrial development and growth in the area. All have and will continue to benefit from one another, ensuring the future success of the region.

— Stephan Gray, industrial sales associate, and Jamie Schaefer, research services, Grubb & Ellis|Commercial Kentucky, Inc.

Retail

The retail environment in Louisville continues to be active. As previously mentioned, the retail dynamic creating the most buzz is The Cordish Company’s 4th Street Live! development in the CBD. The project is 50 percent open, with remaining space scheduled to open throughout the year. This entertainment-style retail development creates significant draw to the CBD now with developers continuing to look further south on Fourth Street for more retail space.

The biggest impact on the Louisville traditional retail market will be the closing of the Winn-Dixie supermarkets in Louisville and surrounding communities. The withdrawal of Winn-Dixie in the Louisville marketplace creates a significant opening for other retailers looking to expand in Louisville. The Winn-Dixie stores should be closed by end of the year or early 2005.

The northeastern retail corridor, with Bayer Properties’ The Summit and CBL & Associates Properties’ Springhurst Towne Center developments, continues to expand with the announcement and beginning site work for Old Brownsboro Crossing. The Shoppes at Springhurst will be the last retail development available in the Springhurst Towne Center, which has been a stabilized and extremely successful community draw for the northeastern retail quadrant. The developer is currently talking to a department store to anchor the Shoppes at Springhurst and has already signed Panera Bread for the outparcel.

Class A retail vacancy rates continue to be stable in the 9 percent range throughout the city. Land prices in the new development areas continue to set all-time highs, as do rental rates in the suburban and the CBD marketplace. Small shop space in the 4th Street Live! development gains rates in the $40-per-square-foot range. The best available retail spaces in the east end developments continue to push $25 per square foot on a net basis.

— Craig Collins, retail sales associate, Grubb & Ellis|Commercial Kentucky, Inc.

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