With vacancy in Louisville’s industrial bulk market sitting at 1.7%, an increase of supply is sorely needed. Fortunately, plenty is on the way. At the halfway point of 2022, over 9.5 million square feet (msf) of bulk inventory is under construction with approximately 4.8 msf slated for completion by year end. Due to the demand for big box distribution warehouse space, which skyrocketed due to Covid-19 and the increase of online ordering and e-commerce fulfillment, absorption (12.9 msf) outpaced construction (9.9 msf) to the tune of 3 msf and depleted vacancy in the process.
Average asking rent increased from $4.79/sf to $5.26/sf during Q2 ‘22 and is up 26.7% from the $4.15/sf at this time last year. This can mainly be attributed to overall increase in demand and increased construction costs. With nearly 5 msf of new speculative (spec) product hitting the market by year end, coupled with recent completions of approximately 3 msf, and 1.6 msf of sublease space expected to hit the market in the near future, deal rates are expected to steady and could potentially decrease as competition among landlords increases over the next few quarters.
Several prominent developers responded to the spike in demand in 2020 and 2021 where leasing activity topped 14.8 msf. The majority of new spec construction is occurring in the typical hot spots – Southern Indiana/River Ridge (3.3 msf) and Bullitt County (3.2 msf). River Ridge has been attractive due to its ease of entry but a recent moratorium on spec development will certainly slow new construction moving forward. Bullitt County development has been bolstered since the opening of the new I-65 interchange between Highway 480 and Highway 245 despite natural gas still not being available for new development.
Van Trust is underway with construction of a 1,022,055 sf building in River Ridge which will be complete in Q2 ’23. Exeter recently completed a 563,032 sf building in River Ridge which will be purchased by STAG Industrial and America Place will soon complete construction on two new spec buildings in River Ridge which will add a total of 570,000 sf by the end of 2022. Exeter is also nearing completion of their Derby Logistics development, a two-building 1.5 msf project in Bullitt County, 974,050 sf of which is pre-leased to Arvato. CORE5 will deliver two buildings totaling 863,324 sf to Bullitt County around the end of 2022.
Nearing completion in Louisville’s south submarket are IDI’s 499,275 sf building and Dermody’s two-buildings totaling 412,160 sf in Renaissance Business Park, 208,300 sf which is pre-leased to Fisher & Paykel. Other notable development underway includes Flint’s two-building development on 100 acres in Shelby County that will add 1,528,740 sf in 2023 and Browning’s 711,975 sf building in Velocity 65 Trade Center™ that will add to Bullitt County’s 19 msf of bulk inventory in 2023.
Weiland North American Recycling broke ground on their $100M facility in Shelby County totaling 100,000 sf on 79 acres. The facility will be used to melt copper and copper-alloy for recycling. The investment is expected to bring 75 high paying jobs to the area and be operational by late 2023.
Leasing activity in the bulk sector has remained strong through the first half of 2022 with over 3.9 msf – up from 3.5 msf in Q2 ’21. Over the past five years, Louisville has averaged 5.3 msf of bulk leasing volume per year and the trend should continue into the first half of 2023. Build-to-Suit development totaling 1.04 msf will help positive absorption remain strong as it has over the past seven years .
Bullitt County has seen the most leasing activity (1.4 msf) year-to-date with the South submarket at nearly 1.1 msf thanks to five new transactions so far in 2022. Given the construction completions pending in all submarkets, prospective tenants should have plenty of options in the area to choose from.
Investment traffic has slowed through the first half of 2022 as interest rates and inflation concerns have caused buyers to reassess valuations, cap-rates and long-term cost of capital. In fact, a few projects which were on the market at the beginning of the year have since been taken off the market and a couple which were previously under contract did not transfer due to volatility in the capital markets.
Lack of available land sites persists. Almost all of the logical sites have been consumed and developed over the past four years by active bulk developers. Land aggregation, costs and regulatory issues around zoning and developing land for industrial use will continue to rise. Long term, tenants may have fewer choices as they attempt to right size their Louisville operations.
Now that Louisville’s bulk market is ripe with options and opportunity, the wave of demand should continue.