Midwest Real Estate news spoke with Tony Fluhr, director of commercial leasing at Louisville’s NTS Development Company. Fluhr said that the commercial real estate market in Louisville was on the rise. Even better, he expects activity levels to continue to soar in this growing Midwest market.
Midwest Real Estate News: Commercial real estate activity appears to be on the upswing in Louisville today. Is that what you are seeing in the market?
Tony Fluhr: As the national economy continues to strengthen, Louisville will follow. We typically lag the national economy a bit. We are typically on the heels of the national economy. But we are seeing activity increase in all sectors right now. And it’s something we expect to see continue.
MREN: Let’s look at the different sectors. What are you seeing right now in the office sector in Louisville?
Fluhr: While most other markets have not been seeing any spec development in office, there have been some unique spec projects in our market. In 2009 and 2010 when there was virtually no new development in the office market, we were developing a 125,000-square-foot office spec development at the ShelbyHurst Research and Office Park. We continue to work at this park in conjunction with the University of Louisville, and will continue to develop spec office properties there. We are also developing other spec office projects on a smaller scale.
Besides what we are doing, though, there has been virtually no new net development occurring on the office side. That has helped keep our office vacancies down a bit. Overall, there is a vacancy rate of about 14 percent across the entire Louisville office market. The suburban Class-A office market, though, is seeing lower vacancy rates. The rate in that submarket is about 6 percent. That is where we are developing spec office projects. The vacancy rate in this submarket is about half of what it is in the overall office market here.
MREN: What kind of office space are companies looking for in the Louisville market?
Fluhr: There is a huge demand for new sexy product in our market. Spec development is just now starting to come back. We are finally seeing more developers who had been on the sidelines start to drum up plans and prepare renderings.
MREN: There is plenty of new spec development in the industrial market in Louisville, though. How is that market faring today?
Fluhr: The industrial market had been unbelievably tight the last few years. Developers stopped developing. Right now we are at about 5 percent vacancy in that market. There are now a ton of spec projects going on. There is more than 3 million square feet of new industrial construction underway in 2014 across the Louisville market. We have seen consecutive quarter after quarter declines in vacancy rates in this market. That has prompted several developers to break ground on industrial projects on a spec basis. That is not the norm in our market, but that is what is happening now.
MREN: Multi-family is hot across the Midwest and the country. How is it faring in Louisville?
Fluhr: Developers now are just looking for sites on which to build. Our apartment market could not have been hotter coming out of the recession. Our vacancy levels are almost non-existent for the properties we own. We are pushing rents pretty aggressively across the region. In Louisville itself, we are pushing them even harder. It’s a great story. I’ve spoken with our multi-family VP, and the topic of whether overbuilding is going on in this sector continues to come up in cocktail hours. But rents continue to go up. Vacancies continue to be very low. The Millennials continue to drive that bus. They want newer products, and they’re not afraid to pay for it. Of course, that’s a national trend. It’s translated, though, into our market in a big way. It’s a very good day to be an owner of a multi-family property in Louisville.
MREN: What has activity been like in the retail sector?
Fluhr: We just had the grand-opening of a mega outlet mall in our market, the Outlet Shoppes of the Bluegrass in Simpsonville (a suburb of Louisville). If you would have gotten on I-64 heading to that area you would have found yourself in a substantial traffic jam. That is a huge outlet mall, with a ton of national retailers. That project cost in excess of $80 million. That is a huge deal for our retail market. In addition to that, we’ve had other pretty sizable retail developments occurring in the area. A group of Nashville, GBT Realty Corporation, is building the Middletown Commons retail center on the east side of Louisville. That will have a Texas Roadhouse and Chick-Fil-A on the outlots.
MREN: What do you think makes Louisville such a strong market?
Fluhr: Although Louisville is considered a tertiary market by most national investors, we do have a lot of good things to report. We ware what I would call a traditional Midwest-style city, even though a lot of people categorize us as a southeastern city. We didn’t experience a lot of the lows nor the highs that a lot of coastal markets have seen. We are a safe haven. Some of our industrial guys argue that we are the best tertiary market that any institutional investors have seen. We have the UPS hub in Louisville. One of the world’s largest air-shipping hubs is based right here in Louisville. A lot of the spec development we’ve seen is based on UPS being here. Logistics companies want to be here.
MREN: What do you think the future holds for Louisville?
Fluhr: The mayor says that we are the possibility city. We are ranked as one of the most affordable cities in the United States. At the same time, our unemployment levels are lower than they are for the nation overall. This is an excellent place to raise a family. Our wages provide for excellent opportunities for residents. We are in the heart of the country. I’d say that we are doing so many innovative things here that Louisville will continue to attract companies and developers who want to invest in our city. I’d say that our market will continue to grow.