With a vacancy rate of more than 40 percent, PNC Plaza, which remains caught up in foreclosure, by and far leads the downtown office market in terms of vacancy, so much so that if it is taken out of the equation, overall downtown vacancy rates would decline more than 3 percent, according to a report from real estate firm JLL.
The office structure with the second highest vacancy rate, 37.6 percent, is Waterfront Plaza Center. However, looking at Waterfront Plaza as a whole, its vacancy rate is only 23.3 percent. Every other office building in JLL’s report has an occupancy rate of more than 70 percent.
Doug Owen, a senior vice president with JLL in Louisville, said prospective tenants are hesitant to move into PNC Plaza, denoted by its address 500 W. Jefferson St. in the above graphic, because of the uncertainty surrounding its ownership. Though, he argued, they shouldn’t be, as the building must still be managed and lease agreements upheld despite the legal proceedings.
“Whether that is founded or unfounded, that is certainly a thought process tenants go through,” he said.
The office building, the third largest downtown, was slated to hit the auction block in July, but it was canceled. The auctioning of PNC Plaza has not yet been rescheduled, according to the Jefferson County Circuit Court Commissioner’s Office. Insider reached out to the attorney handling the case but did not immediately hear back.
PNC Plaza fell into foreclosure after PNC Financial Services Group consolidated its operations into National City Tower, 101 S. Fifth St. The assessed value is $35 million.
JLL does not lease the building, the real estate firm CBRE does, but Owens said JLL has shown the property to potential buyers.
“I do think it will sell, and I do think that there is a buyer. I think the question is what is the final number,” he said.
The other lingering question is: Will the new owner invest money in the building to return it to class A office space, or will it market the property as Class B?
Either way, Owen said, “I don’t think it would have too much of an impact” on downtown rental rates, which currently sit at an average of $18.72 per square foot.
Another interesting tidbit from JLL’s report is the lack of net absorption. The percentage of new office space taken over is 0.1 percent.
Owens told Insider Louisville that companies are getting smarter about how to fit more people into smaller spaces. In some instances, businesses have employees who only work from the office occasionally, so they’ve set up desks that transient employees can share, rather than giving each their own. Law firms, in particular, he said, are downsizing partner offices and having shared offices for retired partners who don’t come in every day.
“I think we are in an interesting time, and this is not unique to Louisville,” Owen said. “Users are becoming much better at using space.”
Also, the city is experiencing “a little bit of a slow market activity because we aren’t seeing a tremendous amount of new companies looking at Louisville,” said Owen, who later clarified that he was speaking for his experiences at JLL and could not comment on whether other commercial real estate firms have been talking with businesses that may be looking to locate offices in downtown Louisville.
As more hotels, residential complexes, retail and restaurants come online downtown, Louisville will grow increasingly attractive to companies seeking to open new offices or relocate, he noted.
“We are really seeing a rush of new amenities into the downtown market,” Owen said. “It really makes it so that our urban core is a 24/7 operation, and that will really increase the demand for downtown office space.”