Industrial activity in Louisville is growing at an exponential clip and doesn’t appear to be slowing anytime soon. As famously quoted in Field of Dreams, “If you build it, they will come.”
And indeed they have.
In Louisville and extending into southern Indiana, more than 3 million square feet of new construction has already been delivered this year. What’s more, the current pipeline of projects under construction — coupled with proposed construction — could deliver as much as 3 million square feet or more in the next nine to 12 months.
The real estate landscape in Louisville is forever changed. Historically, institutional investors expressed interest in the region but were reluctant to take action. Now, with robust projects on the horizon, the pool of institutional owners making large-scale investments continues to grow. New players like The Opus Group, Dermody Properties Inc., Browning Investments LLC, Molto Properties LLC and VanTrust Real Estate LLC have all established projects in Louisville in the last two years.
Powell Spears, JLL
But why Louisville? Investors are setting sight on Kentucky for more than just new construction.
Prime Locations
Even during the economic downturn between 2008 and 2011, Louisville was never a victim of the extreme fallout experienced by many neighboring cities. While vacancy was up, Louisville was not overbuilt and also continued to benefit from its accessibility to national points of entry.
And then, the market hit a turning point in 2014. Throughout 2014 and into 2015, the city saw historic lows in vacancy (as low as 4 percent) — a beacon of light to outside developers and investors. Heading into 2016, it was clear that Louisville could meet and exceed the needs of big name businesses.
Prime for industrial, we continue to observe an increase in market interest for several reasons:
1. Location. Louisville has access to 65 percent of the U.S. population within a 48-hour drive. That translates to quick shipping for domestic e-commerce activity. Subsequently we’ve seen a significant number of fulfillment centers committing to the area.
2. Transportation. UPS Worldport, the largest packing handling facility in the world, has a 5.2 million-square-foot hub in Louisville. It’s likely one of the many reasons why FedEx Corp. opened a new distribution center locally in May, specifically for ground operations. Thanks to the local UPS facility, among other transportation advantages, the city is viewed as an inland port.
3. Enterprise presence. Making it more desirable, Louisville is also home to several successful enterprises, namely Ford and GE’s Appliance Park. Ford has two local assembly plants — the 3 million-square-foot Louisville Assembly Plant and the 4.6 million-square-foot Kentucky Truck Assembly. With more than 13,000 employees, Ford decided to add another 2,000 employees last year at the Truck Plant to support new growth. Similarly, GE has created roughly 400 jobs at the local Appliance Park during the last year.
4. Local talent. With major brands like GE and Ford in Louisville, the city is rapidly becoming a hotspot for skilled professionals in advanced manufacturing. In fact, the mayors of Louisville and Lexington joined forces in 2015 to launch a local program focused on teaching the younger generation advanced manufacturing skills.
New Landscape in Louisville
Thanks to an attractive, evolving marketplace, investor appetite is stronger than ever. In fact, since January 1, there has been $173 million worth of investment transactions.
Year-over-year, JLL research has observed compressed cap rates and an upward trend in industrial price per square foot. In 2008, for example, a buyer paid $48 per square foot for a roughly 832,000-square-foot building. In recent months, several buildings have traded at the amplified price of $60 per square foot.
Louisville industrial space is growing in value, and more and more investors are staking claim. In May of this year, IPT Trade Port D.C. III LLC purchased one of the city’s largest industrial facilities, The Radial campus, consisting of 960,000 square feet across two buildings, for $52.3 million, illustrating continued institutional appetite.
A number of outside buyers are also active in Bullitt County, which currently has more than 11 million square feet of industrial space under construction. The largest project underway: an Indianapolis-based Browning firm is in the midst of a $175 million project comprising more than 4 million square feet of industrial space near Cedar Grove Road.
Other projects in the works include Dermody Properties’ 546,000-square-foot speculative industrial property in Bullitt County, Molto Properties’ 645,000-square-foot building in Renaissance South Business Park and Main Street Realty’s new project totaling 780,000 square feet across two buildings. Other speculative projects include Crossdock Development’s 668,000-square-foot warehouse, VanTrust Real Estate’s 592,000-square-foot building and The Opus Group’s 426,450-square-foot distribution facility in River Ridge in Jeffersonville, Ind.
There’s no question that the Louisville market will expand significantly over the next few years. The real question, however, is whether the market can maintain the velocity needed to absorb new construction.
JLL’s Managing Director in the Louisville office, Powell Spears, recently joined the firm in the acquisition of Harry K. Moore. Spears has more than 20 years of experience and is a SIOR award winner.
— By Powell Spears, Managing Director, JLL. This article originally appeared in the September issue of Southeast Real Estate Business.