16 • September 2014 • Southeast Real Estate Business www.REBusinessOnline.com

MARKET HIGHLIGHT: LOUISVILLELOUISVILLE’S RETAIL MARKET RIDES WAVE OF DEMAND MOMENTUM ACROSS THE CITY

Louisville is riding a wave of mo-mentum after hosting its third PGA

Championship at Valhalla Golf Club in August. In addition, the $2.5 billion Louisville-Southern Indiana Ohio Riv-er bridge projects are under construc-tion and scheduled to open in 2016. This project adds two new bridges, an east end bridge connecting I-265 in Kentucky with I-265 in Indiana, and a second bridge located downtown as part of improvements to I-65. These significant infrastructure improve-ments are a game changer in the fact

that they will improve accessibility to new retail trade areas such as south-ern Indiana and northeast Louisville.

In anticipation of the Kentucky In-ternational Convention Center being dramatically expanded and remod-eled, Louisville has five hotels under construction or planned for down-town. Omni Hotels & Resorts will build its first property in Kentucky in Louisville, a 600-room convention hotel at Third and Liberty streets. Es-

timated to open no later than 2017, the Omni will be adjacent to 200 apartments, a grocery store and retail shops. The project is a public-private partnership between Omni, Cordish Cos., metro government and the state of Kentucky. REI Real Estate Services and Poe Cos. are developing a 172-room Aloft Hotel located in the cen-tral business district at the corner of 1st and Main streets. Additionally, a 300-room Embassy Suites conversion of the former Hilliard Lyons office building is underway.

Louisville is also making a strong push for Bourbon tourism in down-town Louisville. This “Urban Bour-bon Trail” consists of more than 27 hotels, bars and restaurants offering a unique bourbon experience with each establishment serving more than 50 bourbon varieties. Urban Bourbon tourist facilities such as the Evan Wil-liams experience are open or in the planning stages.

Gill Holland, the developer of NuLu (East Market District) has committed to revitalizing the historic Portland neighborhood with a $23.5 million project.

GGP’s Oxmoor Center added a 27,000-square-foot, two-story H&M store that opened in November of 2013 as part of a renovation of the mall. New tenants recently opened or announced are Kate Spade, lulule-mon, Madewell, Michael Kors, Tumi, Rack Room and Alter’d State.

The Northeast trade area has been the growth area of Louisville and has seen an increase in activity with Phase II of Chamberlain Pointe under con-struction. Louisville’s only lifestyle center, Paddock Shops, formerly The Summit, has recently added Orvis, Lenscrafters and Noodles & Co.

Nashville-based GBT Realty Corp. is under construction with two new ground-up retail centers in Louisville with projected openings of spring 2015. One of the projects, Middle-town Commons (250,000 square feet) in the east end of Louisville at I-265 and Shelbyville Road, has a tenant roster including Academy Sports + Outdoors, Liquor Barn, Hobby Lobby, Ross Dress for Less, Rack Room, Texas Roadhouse and Chick-fil-A. Jefferson Commons (230,000 square feet) in the Southeast submarket at Outer Loop and Jefferson Boulevard adjacent to the Jefferson Mall has a tenant ros-ter that includes Academy Sports + Outdoors, H.H. Gregg, Liquor Barn, Michael’s, Shoe Carnival and Buffalo Wild Wings. Both projects were 90 percent pre-leased as of this writing.

Kroger has continued to increase its dominance of the grocery segment in Louisville with the expansion and re-model of three stores in 2014.

Justin BakerPrincipal Broker, Partner,TRIO Commercial Property Group

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www.REBusinessOnline.com Southeast Real Estate Business • September 2014 • 17

MARKET HIGHLIGHT: LOUISVILLElouisville flips the script: cbd rebound complements suburban office market

The economic recovery has flipped Louisville’s office market. Historically, the central business district (CBD) has lower vacancy and higher leasing rates than the suburban office market, while new development and low barriers to entry generally kept vacancy higher in the suburbs. Now, suburban vacancy rates rest below the CBD’s, especially for Class A product. Even as specula-tive development returns to the sub-urbs, the submarket’s hot streak shows no signs of abating, and the downtown submarket has plenty of positive mo-mentum as well.

Suburban Class A vacancy was 8.4 percent at mid-year, with average ask-ing rates in the $20 to $22 per square foot range, or higher in top-tier new office developments. The suburban of-fice market has been quite active, but Class A and B vacancies haven’t mate-rially changed this year due to a spate of renewals and net moves from one building to another. Still, we expect a noteworthy fourth quarter as demand is perhaps as strong as it’s ever been, and owners remain aggressive, in many cases offering three months free rent and turnkey tenant improvements with long-term deals.

Lack of available large blocks of space could lead to build-to-suit activ-ity, too. There are virtually no available blocks of contiguous Class A space

larger than 40,000 square feet in the suburbs. On the other hand, we expect suburban Class B space to hold steady at approximately 13 percent vacancy as prospects slowly backfill available blocks, especially in the Jeffersontown area.

In the suburbs, the University of Louisville and NTS Development’s ShelbyHurst Research and Office Park has achieved remarkable success. The partnership’s first Class A building, which totals approximately 125,000 square feet and delivered in 2012, was 50 percent pre-leased before construc-tion started and leased up within a year of completion. Its second office development is nearly 50 percent pre-leased as well and achieving close to its asking rate of $26 per square foot. If the market remains strong, we anticipate groundbreaking for ShelbyHurst’s third building within a year after com-pletion of the second, which also will be 125,000 square feet.

Downtown’s value and revitalized amenity base resonates with office ten-ants as well. Prospects’ interest in large blocks of CBD space continues to esca-late. Owners of select Class A towers — the Meidinger Tower and Brown & Williamson Tower, in particular — are aggressive deal makers, offering com-pressed rates at entry points unseen in decades.

With lease rates of $15 to $16 per square foot and parking between $80 and $85 per month, it is economically feasible to lease Class A CBD space for less than its suburban counterparts, with employee parking included in the transaction. Competition between the Brown & Williamson and Meidinger towers, which are 39 percent and 44 percent leased, respectively, has lured

tenants that are new to the market such as MedSynergies, XPO Logistics and TQL Logistics to downtown. Con-versely — and only a few blocks away — downtown Class A stalwarts such as National City Tower, PNC Plaza and LG&E Center are all at least 92 percent leased.

Like many cities across the United States, Louisville’s CBD also benefits from revitalization and tenants’ desire for the types of cool, urban settings that appeal to Millennials. Cordish Co.’s 4th Street Live!, a retail, restaurant and entertainment district connecting the Meidinger and Brown & William-son towers, provides an amenity base that serves both daytime office tenants and nigh-time revelers. The KFC Yum! Center, home of University of Louis-ville Cardinals’ basketball games and big-name concerts and events, is a big driver for the area, too. What’s more, the city of Louisville’s focus on down-town revitalization has yielded more hotel and restaurant development.

Louisville’s first big office trades since 2008 are imminent and will indi-cate demand for the city’s office prop-erties and set the market. The sale of Faulkner Real Estate’s 500,000-square-foot Ormsby portfolio of suburban of-

fice assets should close by the end of the year. Downtown, we anticipate that the 288,000-square-foot LG&E Tower will hit the market before the end of the year.

Given the healthy appetite for well leased and located commercial real es-tate across the United States, interest in these properties should be strong. Oc-cupancy and assets are stable, as Lou-isville is a strong secondary market that historically does not experience the wild highs and lows of other Sun-belt cities. Though pockets of vacancy do remain in the Meidinger and Brown & Williamson towers and in a few oth-er isolated instances, that’s a bit of an anomaly and was not unexpected. In other words, Louisville is a solid office market, and the recession’s lingering impact, such as it is, is being addressed with a great deal of success by aggres-sive owners.

Ultimately, Louisville has returned to its status as one of the steadiest second-ary markets in the United States, and we’re fortunate to be in a market where both suburbs and CBD are thriving and have a great deal of potential. With the strength of Louisville’s suburban mar-kets and revitalized CBD, we expect that momentum to carry over into 2015 and for the foreseeable future.

Doug OwenCo-Managing Member and Office Group Leader,Cassidy Turley

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A new retailer to Louisville, Boul-der, Colorado-based Lucky’s Mar-ket opened its fifth store on May 14 in a multi-store expansion across the Midwest and Rocky Mountain region. The new 30,000-square-foot Lucky’s in Louisville is located in the Forum Shopping Center. The chain specializes in natural and or-ganic foods, locally grown produce, groceries and fresh meat and sea-food.

Wal-Mart Stores Inc. is building a 150,000-square-foot Supercenter at 18th Street and Broadway. The in-vestment of more than $25 million is the largest economic development project in western Louisville in the last decade. Wal-Mart is also build-ing a Supercenter on its former site on Outer Loop across from the Jef-ferson Mall.

Cincinnati-based Phillips Edison has purchased the Town Fair Shop-ping Center (234,364 square feet) on Hurstbourne Parkway, which is an-chored by Walmart, for $24 million, and the Central Station Shopping Center (131,000 square feet), which is anchored by Kroger on South Sec-ond Street, for $14.5 million.

The Outlet Shoppes of the Blue-grass, a 366,750-square-foot outlet center with more than 80 retailers, opened in July. Part of the Louisville MSA, the center is located between Louisville and Lexington off I-64 (Exit 28). Daily traffic counts exceed 68,000 and more than 1.2 million people live within 30 miles. The out-let center is a joint venture between CBL & Associates Properties Inc. and Horizon Group Properties.

The retail forecast for Louisville is very optimistic and all indicators point to continued growth into 2015.

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