Louisville Office Investment Forecast
Louisville Metro Area, 2018 Outlook
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Economic Resilience Bolsters Asking Rents; Eastern Suburbs Attract Investor Attention

Employment growth sustains healthy tenant demand. Additions by office-using firms are slated to double, with law, tech and health-related organizations all adding staff. Businesses such as consulting firm Mercer, insurance company United Healthcare and stock transfer company ComputerShare expanded their footprint in the market last year, contributing to the tightest vacancy of any major metro. Company expansions should maintain a consistent need for available space throughout the market, specifically east in the Hurstbourne and Lyndon areas. Last year, several large leases were inked in this submarket, led by convenience store chain Thornton’s, which now occupies 89,000 square feet. A lack of construction in most metro submarkets and positive absorption allow the aver-age vacancy rate to drop to a cycle-low level. This prolonged span of limited availability supports a sustainable pace of annual rent growth, pushing the average asking rent to a historically high mark by year end.

Investors adjust strategies amid listing reduction, elevated competition. Over the past two years, robust buyer interest has translated to strong sales velocity. This period of heightened deal flow and owners’ growing reluctance to sell following the return of positive rent growth could slow acquisition activity moving forward. Seasoned local buyers with an eye for sub-10,000-square-foot buildings at below-average pricing target Old Louisville, pursuing re-tenanting opportunities off West Broadway. Employment hubs in the suburbs of Hurstbourne, Lyndon and Middletown lure investors searching for high-er-quality office space near major transportation routes. Of late, Nashville-based buyers have been notably active in these locales, enticed by entry-level pricing that trails their home market. A mixed buyer pool also competes for core and southeastern buildings. While below-average pricing is achievable in these areas, well-located Class B and C as-sets can occasionally sell for more than $300 per square foot.