MARKET OUTLOOK
- After multiple years of fairly stagnant sales activity, several large suburban office buildings have recently been sold, with more coming to market later this year. Flat rental rates and deferred capital maintenance costs could negatively weigh on pricing owners are able to achieve at sale.
- Office utilization and employee attendance has picked up noticeably in both downtown and suburban office properties alike. While remote work will continue to be part of most workplace strategies, in-office attendance has picked up significantly from the lows of the Covid-19 pandemic.
- Tenant improvement costs continue to escalate faster than the rate of rent growth, creating an economic imbalance in the leasing market for landlords and tenants alike in Class B and second generation Class A properties. Landlords need longer lease term length to recover TI costs whereas tenants increasingly are looking for shorter term deals to provide maximum operational flexibility.
MARKET FUNDAMENTALS
YOY
Chg
Outlook
17.9%
Vacancy Rate
137K
YTD Net Absorption, SF
$19.03
Asking Rent, PSF
ECONOMIC INDICATORS
YOY
Chg
Outlook
711.4K
Louisville Employment
4.5%
Louisville Unemployment Rate
4.2%
United States Unemployment Rate
Source BLS
*Q4 2025
KEY INSIGHTS
ECONOMIC OVERVIEW
Q2 2026 showed strong consumer spending, steady business investment, and a healthy labor market. Forecasting points to solid economic growth with a GDP of 2.1% for the quarter. The Federal Reserve maintained the federal funds rate at 3.65% during its June 2026 meeting noting that economic activity was expanding at a solid pace and that labor market conditions remained stable.
CBD
Downtown Louisville’s office inventory contracted 9% in the second quarter, removing buildings and redeveloping to non-office use. Both leasing activity and absorption trended positively, outperforming 2025’s second quarter numbers. Vacancy rates additionally reported positive momentum driven by strong positive absorption alongside inventory consolidation.
SUBURBAN
Suburban leasing activity and absorption remained steady for the third consecutive quarter. Suburban vacancy rates continue to tighten while overall asking rents dipped due to dull quarterly demand.
LOUISVILLE MARKET OVERVIEW
Stability and resilience continued in the Louisville Metro market during Q2. Labor remains healthy with an unemployment rate near the national average. Economic development activity remained a key strength for the region. Louisville continued to benefit from ongoing business expansion initiatives, infrastructure investment, and major development projects that supported job creation and reinforced the area’s long-term competitiveness. Local investment activity remained encouraging during the quarter.
