Strong market performance has allowed the Louisville industrial market to recently post the highest quarter of positive net absorption in market history during the second quarter of 2018, which occurred on the heels of the second-highest quarter of positive net absorption recorded just one quarter earlier.
This outcome has been the result of recent build-to-suit projects, the availability of quality product and growing demand by new and prospective tenants in the Louisville market. Beyond healthy supply and demand fundamentals, Louisville is achieving great balance with access to available labor along with low utility costs.
Tenant Demand Picks Up
There are currently over 20 active prospects considering 200,000 square feet or larger in the metro Louisville market. Much of this demand is attributed to the high level of activity at the two local Ford Motor Co. plants, as well as the proximity of the UPS Worldport, the 5.2 million-square-foot-core of UPS’s global air network located in the heart of metro Louisville.
Jill Morzillo, CBRE
Along with the natural interest from companies in the automotive supply chain and e-commerce companies benefiting from the proximity to UPS, we have recently seen an increase in pharmaceutical and food-related companies considering Louisville for a location.
Strong Labor Force
Another factor for strong tenant demand in the Louisville market is labor. A recent CBRE U.S. Industrial MarketFlash identified the markets that are best positioned for continued industrial development based on labor supply, quality and costs. Louisville is among the markets in the “balanced” category (see chart), having plenty of skilled labor at an affordable cost, according to data from the U.S. Bureau of Labor Statistics, Esri, CBRE Labor Analytics, CBRE Econometric Advisors and CBRE Research.
This situation is especially attractive to e-commerce industrial tenants seeking to increase the speed of online order fulfillment to meet today’s consumers’ demand for fast delivery.
Sound Fundamentals
Louisville has experienced positive net absorption in 40 out of the past 47 quarters, and hasn’t had a quarter with negative net absorption since the first quarter of 2015. The average asking lease rates for Class A industrial space in the market have increased steadily each quarter for the past three years.
This performance has led to an increase in investment activity in recent years. In 2017, properties totaling 5 million square feet were sold to the investment market for nearly $270 million and approximately 2 million square feet of industrial property has been sold for over $110 million year-to-date.
Since 2014, nearly 12.9 million square feet of new speculative modern distribution warehouse has been added to the market. The greater Louisville market currently has a 6.2 percent vacancy rate, and, based on the current market conditions, it is anticipated that the vacancy percentage will be reduced in the coming months. In addition to the existing product, approximately 2.9 million square feet of speculative modern distribution warehouse space is currently under construction in Louisville.
The combination of available labor, a steady supply of warehouse space, centralized location and adequate supply chain infrastructure has the Louisville industrial market poised to continue to produce record-breaking results for the foreseeable future.
— By Jill Morzillo, Research Coordinator, CBRE. Doug Butcher, Senior Vice President of CBRE’s industrial properties team, contributed to the report. This article originally appeared in the September 2018 issue of Southeast Real Estate Business.