Louisville Industrial Market Report: Trends, Transactions, and Future Outlook

  1. Louisville’s industrial market vacancy rate increased by 50 basis points year over year, half the national average increase.
  2. A slowdown in development and construction starts indicates a near-term market balance as demand aligns with supply.
  3. Despite a decrease in net absorption, Louisville’s annual totals are 30% higher than the pre-pandemic five-year average.
  4. Leasing activity rose for the third consecutive quarter, driven by new deliveries, with availability rates below the national average.
  5. Significant leasing and activity concentration is around Louisville International Airport, particularly in the South Central and Bullitt County submarkets.
  6. Louisville faces supply risk with 4 million square feet of unleased space under construction, expected to deliver within six months.
  7. Elevated construction costs are likely to slow down the pace of new constructions, supporting market balance in the medium term.
  8. Shelby County and Outlying Clark County face potential oversupply, with 5 million square feet of industrial space under development.
  9. Rent growth in Louisville is slowing, with current annual gains at 12.5%, but still above the national average, expected to decelerate further.
  10. Investment volume is affected by rising debt costs and wider bid-ask spreads. Still, recent large sales indicate some market activity, with a shift from institutional to private buyers and users.

    Louisville Market Overview

    Healthy demand created stable Louisville market conditions into 2023’s second half. According to CoStar, annual net absorption is 5.1 million SF. This is down from peaks but 30% above the five-year pre-pandemic average. Vacancy rose just 50 basis points year over year.

    Leasing and Development Trends

    Quarterly leasing volume increased for the third consecutive quarter. They were totaling nearly 4 million SF, the highest since late 2021. Deliveries were modest in the first two quarters, adding 1.6 million SF, 40% below the pre-pandemic average.

    Submarket Activity Focus

    The South Central Submarket, near Louisville International Airport, dominates leasing. It accounts for over one-third of annual volume. Bullitt County, south of South Central, is a growing industrial area, capturing 20% of Louisville’s leasing volume.

    Notable Leases and Occupancy

    Metrie leased 308,000 SF in Shepherdsville, Bullitt County. HJI leased about 263,000 SF in the South Central Submarket. These deals reflect strong market occupancy and strategic location choices within Louisville’s industrial sectors.

    Strategic Location and Demand

    Louisville International Airport is a top cargo handler, boosting the city’s industrial demand. It strategically occupies a location within the U.S. Over half of the national population is reachable from Louisville within a one-day drive.

    Construction and Vacancy Rates

    Construction starts in Louisville, which has slowed, predicting fewer deliveries. Despite this, vacancy remains low, around 4%. This low vacancy rate indicates a well-balanced market with ongoing demand for industrial space.

    Rent Growth Deceleration

    Louisville’s rent growth is slowing, with annual gains decreasing from 13% to 12.5%. This rate still surpasses the national average of 8.1%. They are predicted to align with pre-pandemic norms, around 4%.

    Market Affordability

    Louisville remains an affordable industrial market at $6.70/SF. This cost is nearly half the national average. Logistics space asks for $6.20/SF, below the national index.

    Strategic Leasing Deals

    In Outlying Clark County, Idemitsu Lubricants leased 252,000 SF. The 2022-delivered property at 400 Trey Street had rents at $5/SF.

    Prime Location Premiums

    South Central’s sought-after logistics properties command higher rents. Wine Service Co-Op leased over 200,000 SF at $5.95/SF in LogistiCenter at Louisville Airport.

    Bullitt County’s Market Dynamics

    Despite higher overall availability, Bullitt County sees stronger rent asks. Metrie’s lease at Salt River Logistics Park was at $5.95/SF, indicating a premium for new deliveries.

    Record-Breaking Deliveries

    Louisville’s industrial deliveries soared, hitting 7.4 million SF, doubling the 2017-19 average. This growth marks Louisville as a rapidly expanding industrial hub, with an 11% increase over five years.

    Construction Starts Decline

    Despite high delivery volumes, construction starts in Louisville have dropped to a multi-year low. This slowdown indicates a potential moderation in new industrial spaces in the coming years.

    Major Delivery Locations

    Significant recent deliveries are in Jeffersonville and the South Central Submarket. IDI Logistics and EQT Exeter contributed major properties, with some available spaces.

    Slowing Development Trend

    Development in Louisville is decelerating more quickly than nationally, with 6.3 million SF in progress. Most construction is in Shelby County and Outlying Clark County, totaling 4 million SF.

    Large-Scale Projects

    Shelbyville’s I-64 Logistics Center and 700 International Drive are major developments, each adding 1 million SF. These projects, set for completion soon, underscore Louisville’s ongoing industrial expansion.

    Sales Volume Consistency

    Quarterly industrial sales in Louisville increased in Q2 2023, aligning with pre-pandemic levels. Around $200 million traded, slightly above the mid-year average before the pandemic.

    Market Valuation Challenges

    Rising debt costs create a valuation gap between buyers and sellers, potentially slowing transactions. Institutional buyers have receded, with users and private buyers driving most market deals.

    Significant Transaction Highlights

    Large transactions are uncommon, yet an $82 million deal in Shepherdsville marked Q2’s sales strength. Jones Lang LaSalle’s acquisition of Bourbon Logistics Center 3 from Core5 indicates possible price adjustments.

    Top Deals and Market Players

    Recent deals focus on newly delivered, fully leased properties like the $20 million sale at 5710 Cane Run Road. Such transactions involving significant players like Oaktree Capital Management demonstrate market dynamics.

    Owner/User Market Activity

    Owner/users actively selling properties, like LINAK’s purchase at 2300 Stanley Gault Parkway, show strong capital gains. This trend reflects less sensitivity to interest rate fluctuations and continues to shape the sales landscape.

    Forecasting Market Movements

    Economic uncertainty and shifting fundamentals may dampen future deal volumes, with private buyers taking the lead. Institutional investors’ hesitance amidst price discovery sets a cautious tone for the market’s near-term trajectory.

    Closing Thoughts

    In conclusion, Louisville’s industrial market shows dynamic growth and shifting vacancies, rent, and sales trends. Strategic investments and developments are key. Despite uncertainties, the market offers substantial opportunities. For expert guidance and investment solutions, contact Lumicre.

Home » Real Estate » Louisville Industrial Market Report: Trends, Transactions, and Future Outlook