Real Estate’s Holding Pattern is No Match for Louisville’s Top-Tier Potential
Much like the rest of the nation, both Louisville-area landlords and tenants are stalling while waiting for the ripple effects of the COVID-19 pandemic to become clear.
The office market in Louisville has entered a holding pattern of sorts, while tenants evaluate their workspace needs in light of the major shift to remote work. Many are opting to wait and see what the market holds, a stark contrast to the steady development and leasing activity we saw in 2019.
Now with investors taking a more long-term view of the market, larger portfolio sales are limited while everyone questions the future demand for office space. The most recent portfolio transfer was made by the New York-based Group RMC Corp. in its acquisition of a six-building, Class B office portfolio from locally based Ascent Properties for $44.5 million. The deal was traded at an 8.6 percent cap rate.
However, don’t let the lull in activity fool you. The region’s office market is ripe with possibilities.
While many local companies initially speculated about permanently adopting full-term remote work in the second quarter, they’re reconsidering as time goes on. Regional JLL research shows that 80 percent of businesses said most employees will eventually return to the office. Seventy-three percent of companies anticipate needing the same amount of space post-COVID-19, and only 11 percent of businesses plan to shed office space in the near-term.
Several larger users have made long-term space commitments and investments downtown. The largest will see Baird occupy the top five floors of 500 W. Jefferson St. as the signature tower tenant, while leading law firms Frost Brown Todd, Wyatt, Tarrant & Combs LLP and Dinsmore & Shohl LLP also inked long-term leases.
Additionally, Louisville has made a significant investment in the downtown district. It boasts new, state-of-the-art sports facilities, improved infrastructure, readily available public transportation, multiple restaurants and bars complemented by the many urban bourbon distilleries, new hotels and a fully renovated and expanded convention center.
The pandemic has cast a cloud over the downtown market, to be sure. But a region with so much to offer will have no trouble bouncing back.
Just outside of downtown in Louisville’s hottest submarkets, Fenley Real Estate recently completed Two Olympia, a 120,000-square-foot, four-story Class A building in the Northeast corridor that’s already secured 90 percent occupancy. Meanwhile, NTS is close to completing the 435 Building, another Class A building of equal size, which recently secured a full first-floor tenant.
Although developers will likely suspend additional activity until they can better understand the long-term impacts of the pandemic on the local office market, the Northeast suburban submarket is in everyone’s crosshairs for office development. Since 2018, local owners have added over 400,000 square feet of Class A space, with another 120,000 square feet of spec space expected to deliver by year-end.
To anyone watching from the sidelines, it might seem like Louisville’s market has reached a lull while the world waits for a return to pre-pandemic normalcy. But crack the surface on this market, and you’ll see it’s humming with potential and opportunity for strong returns.
— By Doug Owen, SIOR, senior vice president at JLL. This article originally appeared in the September 2020 issue of Southeast Real Estate Business.