Louisville’s Central Location, UPS Presence Make it a Lock for Industrial Users
Louisville is best known for the Kentucky Derby, the premier thoroughbred horse race that has occurred every year in the city since 1875. However, there is another continuous streak that is happening in Louisville, and that is 21 straight quarters of positive net absorption for industrial real estate as of second-quarter 2020.
Louisville’s central location within the Southeast and Midwest, which gives area users the ability to reach two-thirds of the U.S. population within a one-day drive, is a major driver for industrial real estate. The UPS Worldport Hub in Louisville is its only “all-points” hub in the UPS network and provides warehouse and distribution businesses with the ability to process orders later and receive earlier deliveries. This is a tremendous benefit for e-commerce, pharmaceutical, laboratory and electronics companies, among many other industries. There is continual interest from West Coast companies seeking a central location to fulfill product as customer demand for shorter delivery times increases as part of the overall customer experience.
UPS Supply Chain Solutions, the third-party, full-service fulfillment subsidiary of UPS, has a significant presence in Louisville. Many of the customers for which UPS Supply Chain provides fulfillment services are pharmaceutical-related businesses that require time-critical deliveries and operate in temperature-controlled warehouses.
Manufacturing activity in Louisville is also a primary driver for the interest in the market. A major U.S auto manufacturer has two plants in Louisville, along with several Tier One and Tier Two automotive suppliers supporting those operations. The Louisville Assembly Plant, located south of Louisville Muhammad Ali International Airport, and the Kentucky Truck Plant in the Northeast submarket, are examples of a strong manufacturing base of business that support the diversity of the workforce and market occupiers.
Industrial real estate developers have found Louisville to be a great source of opportunity. Prologis, VanTrust Real Estate, Exeter Property Group, Browning, Clarion Partners, Core5 Industrial Partners and many others have large projects currently in the development stage and are taking advantage of the low vacancy rates, strong prospective tenant activity and rent growth to capitalize on the current market conditions.
According to CBRE Econometric Advisors research, Louisville is second only to Los Angeles County for five-year projected rent growth, which is anticipated to be 34.6 percent.
Because topography can be challenging in Louisville, industrial developers must focus on infill locations and seek opportunities as the market expands its boundaries. The Airport/Southside submarket, which historically has yielded the strongest demand, now has limited options for future development.
The Bullitt County, Southern Indiana and Eastern submarkets are where future development is expected. Land constraints within the city will push new construction to these submarkets as demand grows.
Meanwhile, investor interest in high-quality industrial assets has compressed cap rates to all-time lows in Louisville.
All of these factors support sustained positive net absorption for the Louisville industrial market. Companies locating in the market and investors and developers alike, have picked a good horse in choosing Louisville.
— By Tom Sims, senior vice president at CBRE. This article originally appeared in the September 2020 issue of Southeast Real Estate Business.