Industrial Q Kentucky

Louisville industrial market no longer second-tier

Louisville industrial market no longer second-tier,ph01

Louisville’s strong industrial real estate market isn’t news today. It’s been booming for several years now.

And the best news? The Louisville area is showing no signs of an industrial slowdown anytime soon.

“This strong market is not unique to 2018,” said Matt Hartlage, senior vice president of brokerage with the Louisville office of JLL. “We have had a good run for the last couple of years.”

Why has Louisville’s industrial market been so strong for so long? There are several reasons. Hartlage pointts to the city’s prime location in the center of the country. Companies have the ability to reach two-thirds of the U.S. population in one day’s drive.

Louisville is also home to the UPS Worldport, a big advantage to businesses locating in the metropolitan area. The state of Kentucky boasts a pro-business government, too, something that attracts plenty of industrial activity.

The Louisville area also features two Ford manufacturing plants. GE operates a plant in the Louisville market.

“That UPS Worldport is so important,” Hartlage said. “Amazon Prime has made it to where we want it and we want it today. That flexibility for companies is significant. There are so many contributing factors as to why Louisville has such a strong commercial market.”

Cap rates matter, too. Today, cap rates tend to hover right below or above 6 percent for commercial properties in Louisville. That’s strong compared to markets on the East and West Coasts.

“I would have told you that we would never have seen a cap rate near 6 percent here,” Hartlage said. “But when investors are looking at the coasts, they are staring at 4 or 4.5 percent cap rates in the face. A city like Louisville that used to be a second-tier market is now attracting the attention of investors. They see the success we’ve had. Even in down markets, we’ve weathered the storm well.”

Developers recognize just how strong the Louisville industrial market is. That’s why in 2016, they added more than 6 million square feet of new industrial space, the majority of it spec, to the market. In 2017, developers brought just under 4.7 million square feet of industrial space to the market, with spec accounting for a significant portion of this new square footage.

Currently, just under 5 million square feet of industrial space is under construction in Louisville market, Hartlage said.

The strong market is attracting new developers to the market. Big players such as Opus and Exeter Property Group will always work in the Louisville region. But smaller developers, too, are now building their own industrial spaces in this market.

“You do have your bigger companies putting up the big bombers,” Hartlage said. “But some of the smaller developers have really spent time learning Louisville, understanding the market dynamics. They are digging deeper to find a 15-acre, 10-acre site to put up a smaller building. They appeal to a different type of tenant.”

When new industrial buildings do pop up in the Louisville market, they offer certain amenities that are becoming necessities. One of these is location. Hartlage said that many companies today want to locate in industrial space that sits close to amenities such as restaurants and shops.

“What amenities are nearby for employees?” Hartlage said. “Attracting top labor remains a challenge for industrial users. To attract employees, then, they need to offer them easy access to whatever makes their lives easier. Are they close to a drugstore or daycare? It’s important to offer quick access to things that make an employee’s life easier or more convenient.”

Industrial space needs to offer the right amenities, too, to attract tenants. This means plenty of trailer and auto parking. Clear heights matter, with most tenants today wanting ceiling heights of at least 36 feet.

How long will the demand for industrial space in Louisville remain so strong? That’s a big question.

“We have all been asking ourselves what is left on the runway,” Hartlage said. “I think the activity in the last 45 to 60 days has remained strong. The economy is still progressing nicely. Companies are still doing well. We still have companies looking to expand and grow.”