Industrial developers in the Louisville area are struggling to remain busy at a time when construction starts are non-existent. The area usually attracts logistics companies and distribution firms that benefit from Louisville’s location and the city’s transportation routes. But today, tenants simply aren’t interested in building new properties, and developers can’t secure the financing needed to construct speculative developments.
“Most developers are hurting right now,” says Michael Norris of Ray & Associates/TCN Worldwide. “A lot of developers are struggling to make their financial obligations.”
New development has stopped, but tenants and buyers are still looking around, searching for good deals. In the past two quarters, Norris has seen a few 100,000-square-foot leases in Louisville; this isn’t much compared to pre-recession activity, but it means the market is still moving. According to CB Richard Ellis, more than 32 firms were looking for spaces of more than 100,000 square feet during the second quarter. Big leases in the second quarter include Motorcycle Superstore’s 126,000-square-foot lease and CAT Logistics 50,000-square-foot lease. In order to attract these deals, landlords are piling on the incentives.
“Landlords are getting creative, either offering additional TI or offering several months of free rent. They have to offer the tenant quite a bit more just to make the deals interesting, especially since there’s so much more competition out there right now,” Norris says. “A lot of people are out there kicking tires, but it’s a matter of them actually coming through and completing those deals.”
Louisville, as a whole, has experienced negative absorption for the past three quarters, a trend that CB Richard Ellis doesn’t expect to reverse until the end of this year. Fortunately, a complete lack of construction means that very little space is being added to the metro area’s industrial real estate population. Developers have learned from the recession and will move forward with more care than before. But change, as Norris points out, takes time, and a full recovery of the Louisville industrial sector is still in the distance.
“I don’t see it changing in the next year,” he says. “Maybe in the next 2 or 3 years you might see some projects, but they’re going to be on a lot smaller scale.”
— Jon Ross