by Dan Rafter
Kentucky has several important metro areas, with cities such as Lexington, Bowling Green and Covington serving as economic engines for the state.
But today, no single metropolitan area is providing as big of a boost to the state as is Louisville.
You can credit this to Louisville’s booming industrial sectors, which is seeing a steady wave of new spec construction. You can also point to the area’s tourism industry, the Bourbon Trail attracting plenty of visitors each year.
The city’s office and retail markets are thriving, too, with vacancy rates falling and new retailers and restaurants flocking to the center of Louisville.
Louisville, then, has become an even more important city for Kentucky. Douglas Owen, senior vice president for brokerage in the Louisville office of JLL, doesn’t see this changing any time soon.
“I don’t want to say that Louisville is the only economic driver for that state. Kentucky has plenty of key metro areas,” Owen said. “But Louisville is certainly an important driver right now for the state. Our city officials have become aggressive in turning our downtown into a true live, work, play area.”
Owen said that Louisville’s downtown has changed significantly during the last decade. Just 10 years ago, downtown Louisville featured maybe four restaurants. When work ended for the day, most people simply went home, Owen said.
Today? That has changed. A steady stream of gourmet restaurants has opened in downtown. Retailers – both independent and name-brand – have hit the center of the city, too, transforming downtown into a vibrant neighborhood that no longer shuts down at 5 p.m.
“There has been a tremendous change,” Owen said. “The retail investment over the last 10 years has been amazing. Boutique hotels are coming. There are festivals. Downtown has come alive.”
There is one key puzzle piece missing, though: a big multifamily development in downtown Louisville.
“Right now, that residential component is what downtown Louisville is lacking,” Owen said. “We could definitely use some residential construction right in the heart of downtown. To have that come up will be a draw for more Millennials.”
The time is certainly right for such a development. The Whiskey Row section of downtown Louisville is an example of the renewed energy here. A mix of new and established restaurants is helping to bring tourists to this key stop on the Bourbon Trail.
Professional soccer team Louisville City FC has plans for a major investment near downtown, too, announcing this April that it has selected 40 acres in the Butchertown neighborhood, just east of downtown Louisville, for a proposed 10,000-seat soccer stadium. The stadium would be part of a larger retail, office and hotel complex that would open here as early as 2020.
John Hollenbach, a dveloper who is also part owner of the soccer club, called the site “far and away the best option” during a news conference announcing the soccer team’s plans.
Downtown Louisville has already seen a key addition to the downtown scene, new hotels. The most important of these is the Omni Louisville Hotel, scheduled to open in the spring of 2018 at 400 S. 2nd St. downtown. The hotel will bring 612 guest rooms and suites, and is rising just one block from the Kentucky International Convention Center. The Omni will also include 70,000 square feet of meeting and event space and a 20,000-square-foot market and grocery.
The stats certainly point to a city with a bustling commercial real estate market. CBRE in early January reported that the Louisville office market saw total net absorption of 318,112 square feet of office space in 2016, a strong performance. The Louisville market also saw its Class-A office vacancy rate fall 20 basis points to 10.8 percent in the fourth quarter of that year.
“And we expect this to continue in 2017,” said David Hardy, managing director of CBRE’s Louisville office.
The Louisville industrial market has been strong in 2017, too, according to the latest research from JLL.
In the first quarter of the year, the Louisville market absorbed 605,767 square feet of industrial space, JLL reported. And the industrial market enjoyed a strong finish to the first quarter when Clarion Partners purchased the 645,840-square-foot Air Commerce II building from Molto Properties for $42.3 million.
The total vacancy rate in the Louisville industrial market fell to 10.2 percent during the first quarter, according to JLL. Average asking rent rose for this sector to $3.70 a square foot.
“It’s not just office buildings and work downtown now,” Owen said. “There are more reasons to come downtown. A lot of companies want to open in downtown Louisville. The Millennials don’t want to commute to the suburbs. They want to work downtown and then go out to the bars and restaurants. They want to work close to where they live. We are on the precipice right now of really having all that downtown.”
Again, Owen says that more residential construction downtown is the missing ingredient. Once residents have more places to live in downtown, Owen said, they will flock to the city center.
A steady market
Like many major Midwest metro areas, Louisville benefits from a steady, if not explosive, economy. The city doesn’t see big upswings or, alternatively, big downturns.
Instead, the local economy remains stable, a blessing during the country’s rougher economic patches.
“You might see more peaks in markets such as San Francisco, Chicago or New York,” Owen said. “We don’t see those peaks here. But with that, we also miss the deep valleys that you see during recessions. We seem to be more stable, more resilient.”
Owen said that while Louisville might not get the press that some other bigger cities receive, it does tend to grab its residents. Owen said that he’s seen several executives who have been transferred to Louisville. When they eventually retire, they often come back to the city, even if they only spent a few years in Louisville.
“It’s just an attractive city,” Owen said. “It is small in terms of geographic area, but it has a lot of the arts and culture that people want to see in an urban environment. The University of Louisville is here, a great research university. There are shops and restaurants and entertainment. There are a lot of reasons to come back to Louisville.”
Because of its stable nature – and the growth of its downtown – Louisville is poised for a strong second half of 2017, Owen said.
“I’m bullish on the next few months,” he said. “The activity on the office side has already been strong, and I expect that to continue. I think we’ll only continue to see more investment and more commercial activity in Louisville the rest of this year.”