Statistic No. 476 you probably didn’t know about Louisville:
Louisville is the third-largest airport hub in North America in terms of volume of cargo shipped – and seventh-largest in the world!
That helps explain why CBRE Louisville was able to announce a minuscule 3.3 percent vacancy rate in Metro Louisville’s industrial real estate market for year-end 2013.
“The quarter ended with 216,675 square feet of positive absorption and marked the eighth straight year of positive absorption in Metro Louisville,” according to “Louisville Industrial MarketView,” the quarterly report issued by the Louisville office of CBRE (Los Angeles), the world’s largest commercial real estate services firm.
In the fourth quarter, according to the CBRE report:
● Publishers Printing bought a 103,000-square-foot building on Hwy. 44 in Bullitt County;
● Filtrona, a supplier of plastic and fiber products, leased 95,000 square feet in Riverport;
● Otto Bock Healthcare took 35,000 square feet on Industry Road in what CBRE regards as the downtown submarket (pretty much anything inside I-264);
● Clarion Partners, the huge real estate management firm, bought four buildings at the Louisville Industrial Center in the Southside/Airport submarket; and
And those were only the highlights!
Certainly, much of that volume is being driven by the UPS Worldport Hub. (The No. 1 airport hub in North America for commercial cargo is Memphis, home of Federal Express.) As we know, any number of product fulfillment retailers, like Amazon and Best Buy, are clustering along I-65 to take advantage of proximity to the huge delivery apparatus – as well as to an interstate that runs from the Gulf of Mexico to the Great Lakes.
But, as Kevin Grove, CBRE’s senior VP and partner, points out, it has also become a hub of pharmaceutical-related companies like Genentech, Amgen, Johnson Pharmaceuticals, Wyeth-Ayerst, RX Crossroads and Catamaran, who distribute medicines and other health supplies to homes, hospitals, physicians’ offices, medical centers and pharmacies.
And it has become a hub of services, such as electronic repair operations, companies that fix, maintain or replace mainframe computers, laptops, smart phones and hand-held scanners. And not just consumer fulfillment either. “If a retailer’s or warehouse’s hand-held scanners suddenly go bad, it needs them repaired or replaced quickly,” said Grove. “Today’s companies cannot afford a lot of technology downtime.”
He always tells prospective developers and/or tenants that Louisville’s central location can pretty much guarantee next-day delivery service to anywhere in the country.
And, as almost always happens when an industry converges on an area, it’s soon surrounded by second-tier suppliers. So, notes Grove, the pharmaceutical and medical supply companies are attracting packaging manufacturers that specialize in serving the medical and pharmaceutical industry with packages that are durable, secure, temperature-controlled and sophisticated.
And the auto industry, which always attracts second tier suppliers, is currently thriving locally. “We have our two automotive plants in Louisville, the Toyota plants in Georgetown and Evansville, plus the Volkwagen plant in Chattanooga and the BMW plant in South Carolina,” he says. “We’re sitting square in the middle of a great deal of automotive activity, a centrally located position for suppliers to provide those plants with materials, supplies, light assembly, plastic injection molding, anything that supports production.”
Plus, he notes, General Electric’s $800 million investment in Appliance Park spawns any number of parts and materials suppliers.
So, with an “if we build it, they will come” mentality, developers are investing in nearly 3.5 million square feet of industrial space for 2014, under construction right now and almost all of it built on spec.
“Louisville has always been a build-on-spec market,” Grove says, which is of course a high-stakes dice roll but has led to a number of years of growth, even in a down economy.
“No other city I’m aware of has had as many successive growth years as Louisville,” Grove said, referring to the charts in the CBRE report. “Eight consecutive years of net positive absorption, through the entire recession.”
That doesn’t mean it’s been non-stop construction. “We had no new construction from 2008-2011,” Grove says. But the cranes are out in force now. The biggest focus of activity is in Bullitt County, most of it around the I-65 spinal cord. That includes, according to the CBRE report, nearly 501,000 square feet in the Park 480 project in Shepherdsville, all of it currently for lease; nearly 607,000 square feet in Main Street Cedar Grove; and 631,336 square feet at LogistiCenter at I-65.
But there’s also activity in Louisville’s other markets, like a 325,000-square-foot facility being built in Bluegrass Commerce Park; two separate buildings totaling 636,000 square feet in the Louisville Industrial Center; and a 668,000-square-foot building by Crossdock Development going up at River Ridge.
“We are currently tracking over 33 projects that have a need for space greater than 100,000 square feet,” the MarketView reported.
The report also has a couple of good news/bad news items to report.
One, the fourth quarter ended with a national unemployment rate of 7 percent (end of November), while Kentucky reported an unemployment rate of 8.2 percent. Good news?
“Customers moving into the area want an available labor force,” Grove explains. “Some of these companies will need 400 or 500 people. In fact, it’s near the top of the list of considerations for companies seeking new space.”
Two, the average asking lease rate was a low $3.03 per square foot at the end of the quarter. Bad news? “It will likely go up,” Grove says. “It always does when vacancy is low. Supply and demand, Economics 101.”
In other words, the hottest time to strike is now, before the next UPS plane leaves the ground.