After Year of Record Industrial Leasing, Investors Zeroing in on Louisville
In 2018, Louisville saw a record year with more than 10 million square feet of net absorption in its industrial sector. This is a huge absorption number for any of the Midwest markets and represents more than three times Louisville’s previous record. Louisville was second only behind Chicago out of the Midwest markets tracked by CBRE. The absorption follows a record year for speculative construction as well, as close to 4 million square feet was delivered in 2018.
User demand came from all sectors, including automotive, e-commerce, third-party logistics firms (3PLs), manufacturing and medical. Automotive and manufacturing were particularly strong performers. The more notable automotive and manufacturing transactions in 2018 were three Ford Motor Co. leases totaling more than 1 million square feet, as well as New Flyer’s 315,000-square-foot, $30 million transit bus and motorcoach parts fabrication facility in Bullitt County. Additionally, Denso leased 311,000 square feet in Southern Indiana and KCC opened another 224,000-square-foot plant to expand production capacity of its HVAC equipment line.
Distribution remains strong in Louisville due to its central location and available workforce. According to a recent report from CBRE’s Labor Analytics Group, Louisville has the highest distribution labor score among the Midwest markets. As a result, 3PL activity was steady, with Bluegrass Supply Chain Services and Saddle Creek Logistics opening 252,000-square-foot and 200,000-square-foot facilities, respectively. Already in 2019, UPS Supply Chain Solutions has leased two new distribution centers totaling more than 800,000 square feet, with Columbia Sportwear occupying one of the facilities.
Large build-to-suit deliveries in 2018 included Grainger’s 1.4 million-square-foot distribution center and UPS’s $300 million, 838,000-square-foot expansion of its Centennial Hub ground sorting facility
The heavily traveled Interstate 65 corridor, UPS’s Worldport international shipping hub and two Ford assembly plants continue to be key market demand drivers. As the third-busiest air cargo hub in North America and seventh overall in the world, UPS Worldport represents a major advantage for companies looking to gain a competitive edge in next-day air delivery. Not to mention that Louisville is a day’s drive from two-thirds of the U.S. population and is situated on the Ohio River, which handles more than 280 million tons of cargo annually.
After record absorption in 2018, robust investor interest is leading to record-breaking cap rates in 2019. Louisville’s strong fundamentals and solid historical performance attracted capital from across the country, as East and West Coast investors look at Louisville and the Midwest markets for returns that they aren’t getting on the coasts. Exeter Property Group, Stoltz Real Estate Partners and International Airport Centers acquired new assets to add to their growing Louisville portfolios.
In total, investment sales are up 26 percent by total dollar volume in the first half of 2019 when compared to the same time period in 2018. Total investment sales dollar volume of $139 million in the first half of the year only trails behind the 2018 total by 13 percent.
With Louisville’s strategic geographic location and its strong workforce in place, we don’t anticipate that this activity will slow down anytime soon. More new product is in the pipeline, with close to 1 million square feet of speculative projects set to deliver. This will offer more quality space for expanding companies and new investment-grade opportunities for buyers. All of this activity, from leasing velocity to strong investment sales, demonstrates significant confidence in the Louisville market.
Editor’s note: CBRE Research categorizes Louisville as a Midwest market.
— By Kevin Grove, Senior Vice President at CBRE. This article originally appeared in the September 2019 issue of Southeast Real Estate Business.