Friday, August 13, 2010
Louisville office market still seeing modest leasing activity
Business First of Louisville - by John R. Karman III Staff Writer
The first half of 2010 was marked by modest leasing activity and minimal absorption in the Louisville office market.
Vacancy rates remain low, particularly in the central business district, and they should remain that way with no new construction completions expected by the end of the year.
As a result, local brokers have spent much of their time working on lease renewals and extensions as they look for new deals.
In the local market, a large number of renegotiations is believed to have pushed rental rates down, but they are expected to stabilize as the economy improves and the prospects for new construction grow, according to a market report from Commercial Kentucky Inc., a Louisville real estate brokerage firm.
The average asking price for available Class A space in the Louisville market has hovered around $20 for much of the past two years while the going rate for Class B space has been consistently in the $14 range.
Still, he said he’s seeing “a little bit of an uptick” in activity in 2010 compared with a year ago, and he hopes that will mean a significant improvement in the local economy in the next nine months to a year.
Signature Healthcare, a Palm Beach Gardens, Fla.-based nursing home operator, plans to move its corporate headquarters to the Jeffersontown site later this year.
The Commercial Kentucky report said “thanks almost entirely” to Signature’s commitment to the space, the overall suburban office vacancy rate fell to 18.1 percent in the second quarter from 18.5 percent in the first.
That figure includes a 6.9 percent vacancy rate for the overall Class A office market in the CBD — one of the lowest rates for such space in the country.
No new buildings have come online this year in either the CBD or the suburbs, and Commercial Kentucky projected that will mean a slight decline in vacancy rates for the balance of the year — if the economy continues to improve.
“In order for absorption levels to increase in the third and fourth quarters, the market must benefit from enhanced consumer and business confidence,” Rick Ashton, an office broker with the firm, said in the report.
The $20 million-plus project is slated for completion in the fourth quarter of 2011.
Wood of Harry K. Moore said he hopes “for all our sakes” that NTS does well with its leasing of the space. He believes that companies probably won’t begin discussing lease deals for the site until construction begins because people “like to see dirt being moved” before expressing interest in a project.
And the quest for a major anchor tenant at the ShelbyHurst site might take a while, Wood said.
Tyler Smith, an office broker with Louisville’s Hoagland Commercial Realtors, said he negotiated seven agreements totaling more than 10,000 square feet at Dupont Professional Towers in the past five months.
Vacancy rates remain low, particularly in the central business district, and they should remain that way with no new construction completions expected by the end of the year.
As a result, local brokers have spent much of their time working on lease renewals and extensions as they look for new deals.
In the local market, a large number of renegotiations is believed to have pushed rental rates down, but they are expected to stabilize as the economy improves and the prospects for new construction grow, according to a market report from Commercial Kentucky Inc., a Louisville real estate brokerage firm.
The average asking price for available Class A space in the Louisville market has hovered around $20 for much of the past two years while the going rate for Class B space has been consistently in the $14 range.
Wait and see
Office broker Yandell Wood of Louisville’s Cassidy Turley Harry K. Moore said that aside from a few corporate relocations, the local office market remains very slow, with company officials waiting for the economy to improve before embarking on expansions.Still, he said he’s seeing “a little bit of an uptick” in activity in 2010 compared with a year ago, and he hopes that will mean a significant improvement in the local economy in the next nine months to a year.
Signature Healthcare made a big impact
Wood was one of the brokers who negotiated the deal for Signature Healthcare LLC to buy a vacant, 66,000-square-foot building at 12201 Bluegrass Parkway.Signature Healthcare, a Palm Beach Gardens, Fla.-based nursing home operator, plans to move its corporate headquarters to the Jeffersontown site later this year.
The Commercial Kentucky report said “thanks almost entirely” to Signature’s commitment to the space, the overall suburban office vacancy rate fell to 18.1 percent in the second quarter from 18.5 percent in the first.
CBD vacancy rate remains historically low
The overall vacancy rate in the central business district rose slightly in the second quarter to 12.8 percent from 12.6 percent in the first quarter, the report said.That figure includes a 6.9 percent vacancy rate for the overall Class A office market in the CBD — one of the lowest rates for such space in the country.
No new buildings have come online this year in either the CBD or the suburbs, and Commercial Kentucky projected that will mean a slight decline in vacancy rates for the balance of the year — if the economy continues to improve.
“In order for absorption levels to increase in the third and fourth quarters, the market must benefit from enhanced consumer and business confidence,” Rick Ashton, an office broker with the firm, said in the report.
Spec building to return with NTS project
Speculative building is expected to return to the market later this year when Louisville-based NTS Corp. begins construction of a 125,000-square-foot facility at the University of Louisville’s ShelbyHurst Research and Office Park in eastern Jefferson County.The $20 million-plus project is slated for completion in the fourth quarter of 2011.
Wood of Harry K. Moore said he hopes “for all our sakes” that NTS does well with its leasing of the space. He believes that companies probably won’t begin discussing lease deals for the site until construction begins because people “like to see dirt being moved” before expressing interest in a project.
And the quest for a major anchor tenant at the ShelbyHurst site might take a while, Wood said.
Small deals continue to get done
Big deals in the office market have been hard to come by during the economic downturn, but smaller ones continue to be made.Tyler Smith, an office broker with Louisville’s Hoagland Commercial Realtors, said he negotiated seven agreements totaling more than 10,000 square feet at Dupont Professional Towers in the past five months.
The 155,000-square-foot building on Dupont Circle is 87 percent leased, according to Smith. Space there lists between $14 and $16.50 per square foot.
In addition, he brokered six leases of more than 10,000 square feet during that same time period at Commerce Center II on Crums Lane in Shively.
The nearly 40,000-square-foot property has about 6,000 square feet available at a cost of about $10 per square foot.
Hoagland owns both properties.
Smith said most of the companies signing leases have been in the medical or information technology fields. He attributed his successes to aggressive marketing.
“We have been busy,” he said. “We’re not just sitting back waiting for the phone to ring.”
Louisville office market snapshot
Class A rent Class B rent Overall Vacancy rate
1Q ‘09 $19.02 $14.43 15.9%
2Q ‘09 $18.93 $14.51 15.8%
3Q ‘09 $19.10 $14.32 15.9%
4Q ‘09 $19.76 $14.18 15.6%
1Q ‘10 $19.64 $14.30 15.8%
2Q ‘10 $19.41 $14.14 15.8%
Source | Commercial Kentucky Inc.
1Q ‘09 $19.02 $14.43 15.9%
2Q ‘09 $18.93 $14.51 15.8%
3Q ‘09 $19.10 $14.32 15.9%
4Q ‘09 $19.76 $14.18 15.6%
1Q ‘10 $19.64 $14.30 15.8%
2Q ‘10 $19.41 $14.14 15.8%
Source | Commercial Kentucky Inc.
