We love getting an exclusive look at the important quarterly Louisville and Jefferson County commercial real estate reports shared with us by Commercial Kentucky and its parent, Cushman & Wakefield.
But the third quarter report shows relatively little movement since the last quarter.
At the end of the third quarter of 2013, the needle has barely moved since Commercial Kentucky began sharing their quarterly reports with us more than a year ago.
The overall vacancy rate for the city remained at about 14.6 percent at the end of September. In the Central Business District, it jumped to 16.5 percent. The Class A vacancy rate across the city stayed at about 11.3 percent. Even in the relatively successful suburban market, it was 13.1 percent.
Only in the bustling Hurstbourne/Eastpointe district was it in single figures (9.4 percent), and just barely. But, as Commercial Kentucky President Phil Scherer says, the problem with the CBD is not suburban flight. It’s simply a lack of enough overall demand right now — “unlocking the Rosetta stone as to how Louisville can attract more out-of-state business.”
Of course, as Scherer is always quick to point out to us, these ebbs and flows don’t always include moves that haven’t yet occurred, even though the deals have been completed.
Take the city’s biggest deal of the last quarter, the move of Atria Senior Living from the Brown & Williamson Tower at Fourth and Liberty to The Nucleus Building at Market and Floyd. It’s a lateral move, but the numbers won’t all shake out until the move is completed and all the people relocate, which won’t happen completely until maybe the second quarter of 2014.
And, since The Nucleus project was originally built as a medical research facility, it didn’t show up on the roll of commercial office buildings until now, which skews the comparative numbers even a bit more.
But the peculiarity of numbers notwithstanding, the trends just aren’t happening fast enough — certainly not fast enough for Phil Scherer, who does everything he can, professionally and personally, to boost downtown Louisville as a place to live, play and set up a company’s work space.
Among the problems, says Scherer, is that despite signs of economic improvement, we’ve had only modest white collar job growth, which has not driven much demand for bigger space.
Also, a variety of trends — such as reevaluating office space productivity, the efficiencies of telecommuting and the benefits of outsourcing — has led many employers to find they can get by with less space. So, in effect, they’re downsizing, not upgrading. And certainly not looking for the amount of space that would turn the vacancy trend around.
Another, somewhat more subtle, factor is the development of call center jobs, for which location is pretty much a non-factor. “All you need is a cubicle and a telephone,” Scherer says. And people who spend most of eight hours a day without even a window to look out of don’t generally know whether they’re downtown or outside the Gene Snyder — nor care.
“In Chicago,” he says (perhaps creating an unfair comparison but still making his point), “employers want to be downtown because that’s where the cream-of-the-crop employees like being. They thrive in the urban environment, want vitality and connectivity rather than the sterility of the suburbs. So Chicago-area companies realize they’re going to have to find downtown locations or they’re not going to be able to recruit the cream.”
We haven’t reached that point in downtown Louisville, he says. “Only when we’ve reached the point where we have a clear, meaningful, motivating distinction between the quality of the work life between the city and the suburbs will employers rush to fill up the downtown office vacancies. And I can’t wait for that day to arrive.”
A lot of people around here use that argument as an opportunity to beat up on local governance. They’re not doing enough. They’re doing the wrong thing. Right or wrong, it isn’t fast enough.
Scherer isn’t one of those.
“We have new leadership at Greater Louisville Inc. and I think Craig Richard is going to focus on what should be focused on: job growth in our community,” he says. “He’s a keep-your-eye-on-the-ball type of guy who’s going to do great things at GLI.”
Scherer also gave Mayor Greg Fischer good marks. “He’s trying to improve the efficiency of government and he’s clearly supportive of measures to drive job growth. He certainly got behind Jim Ramsey on the Atria move to Nucleus.”
Of course, if you read the item we posted earlier this week, not everybody in town was equally behind Ramsey and Fischer on that one.
Unfortunately, it’s not always entirely within the control of local decision-makers. “When Brown & Williamson moved to North Carolina, when Aegon relocated a lot of its people out of its own downtown tower, when Marsh & McLennan downsized, those were decisions made hundreds of miles from Louisville, people who didn’t have the city’s interests in mind,” he says. “We used to have local companies making local decisions about the local community. We have less of that today.”
The answer, Scherer feels, will begin when we have significant growth in downtown housing, particularly rental.
“We’ve given people lots of reasons to want to be downtown — Waterfront Park, the Yum! Center, the expansion of the convention center, more retail, more hotels, great restaurants — now we have to offer them reasons to live downtown. Remember, we went for decades where people had no reason to come downtown except to get their drivers license or pay a traffic fine — and what kind of memorable experience was that?”