Market Reports

The Louisville office market is at an interesting crossroads, to say the least. Historically, the sector has always skewed toward the suburban submarkets as east Jefferson County has been the go-to area for companies looking for office space.  Over the past few years, the shift to the suburbs has become more pronounced than ever as Louisville’s office market experiences a dramatic contrast between the current state of the overall office market in the suburbs versus the central business district (CBD). In the suburban markets, the premier office buildings are experiencing low vacancy rates and record-setting growth in rental rates.  On the opposite side, the CBD continues to struggle with increases in vacancy rates, which is expected to increase in the coming months. This trend reflects overall national office trends as companies focus on new, highly amenitized spaces to offer their employees. Suburban Louisville The suburban office market in Louisville has demonstrated reliable stability over the past four years. As of second-quarter 2024, the vacancy rate for Class A spaces stood at 12.7 percent, while Class B spaces recorded a higher rate of 17.2 percent.  The suburban market has seen limited new construction deliveries thus far in 2024. The most notable …

Like many regional peer cities, there is a clear bifurcation between office leasing activity in Louisville’s downtown and suburban office markets.  Downtown Louisville has been slower to recover from the double gut-punch of the COVID-19 pandemic and local social unrest that kept workers away from the office in 2020, with overall vacancy stubbornly exceeding 20 percent for most of this year. Much of the vacancy has been driven by health insurer Humana, by far the largest office occupier in downtown Louisville, which has let several large Class B office leases expire as it continues to consolidate its workforce into properties the company owns.  Year-to-date, downtown leasing activity totals 115,000 square feet, which is up 58 percent compared to this time last year, while overall absorption has swung sharply lower at negative 237,000 square feet.  The relative oversupply of available office space has created a very “tenant-friendly” dynamic downtown, with landlords becoming increasingly aggressive to court leasing activity. More so than their suburban counterparts, downtown landlords are offering outsized incentive packages to tenants, including rental concessions, turnkey construction delivery of new tenant space, termination options and rental abatement periods that in some cases extend beyond one year.  In exchange, downtown tenants …

The Louisville office market is taking diverse paths forward following the pandemic. The suburban Class A market is thriving with new construction, rental rate growth and resiliency in the face of downsizing tenants and negative absorption. A flight to quality among tenants has benefited local developers such as NTS Development, which has been constructing first-class, next-generation buildings at ShelbyHurst Office Campus since 2012. NTS recently completed its fifth speculative office building at the project, 425 North Whittington, a four-story, 130,000-square-foot building that is 60 percent leased with strong leasing activity. The flight to quality is driving tenants to choose higher-quality buildings with more expensive rental rates to help attract and retain talent and cater to a hybrid workforce. Traditional downtown occupiers are also considering the suburbs for the first time to create a workplace that draws employees back to the office. Suburban vacancy rates have increased since the end of 2019, with the Class A rate increasing by 490 basis points to 13.5 percent and the Class B vacancy rate increasing by 440 basis points to 15.2 percent as of second-quarter 2022. The average asking rental rate for Class A suburban space rose during this period despite increased vacancy rates. …