The numbers and facts jump off the pages like bursts of fireworks.
A third-quarter analysis from the international real estate behemoth CBRE contains proclamations like “second-best quarter ever,” “annual total shatters record” and “2018 will definitely be a year for the record books.”
This not an anomaly for the industrial real estate market. The market, fueled by suppliers, factories, warehouses, distribution centers and others, has been the strongest local segment for several years and for many reasons.
“Proximity to UPS Worldport is a factor,” said Kevin Grove, senior vice president at CBRE in Louisville. “Proximity to two-thirds of the entire U.S. population in a day’s drive is a factor. Good, available land is a factor. The Ohio River and the CSX rail lines are factors. So is a strong available labor force.”
Grove pointed out that market segments like medicine and pharmaceutical are extremely time-sensitive, often requiring same-day or next-day shipping, so strategic location is vital. Increasingly, too, consumer product suppliers are promising same-day or next-day for their premium customers, such as Amazon’s Prime membership.
“And we’re one of the most strategic locations in the country,” he said.
All of those factors have combined to culminate in this powerhouse quarterly report, which Grove insisted will only get better.
There are currently nearly 3 million square feet of industrial space under construction throughout the market. The two largest pieces of property are 1.1 million square feet being built for Medline Industries, the largest privately held manufacturer and distributor of medical supplies and a new 469,000-square-foot bottling plant for Niagara Bottling, which makes and distributes bottled water and soft drinks. Both are in the River Ridge Commerce Center in Southern Indiana — but that’s next year’s news.
Here is this year’s news:
- The net absorption this quarter was 2.04 million square feet, which would have been the highest in history except for the 2.6 million square feet recorded in the previous quarter. “Developers and builders look at net absorption growth as a sign of a healthy market,” Grove said. “They always prefer to see more space being leased or sold than being added for sale or lease, and they want to become part of that.”
- Jet.com, the online retail and distribution partner of Walmart, has leased a 721,050-square-foot building at Velocity 65 in Bullitt County. When the distribution and fulfillment facility is open, it will hire as many as 900 employees.
- Pegasus Industries & Packaging, which supplies parts for the appliance, automotive, logistics, medical, food and manufacturing industries – all of which are drivers in Louisville’s industrial market – leased 256,000 square feet at Riverport.
- The distributor Carroll Tire increased its local footprint with an 82,000-square-foot lease in Bullitt County.
- Bluegrass Supply Chain Services leased 252,515 square feet at River Ridge.
- General Truck Body purchased a vacant 62,500-square-foot plant at 3000 W. Broadway.
- Projects started during the quarter included the 235,000-square-foot Brooks Logistics Center in Bullitt County, and a 210,000-square-foot build-to-suit at Riverport for Algood Food Co., a Louisville-based packer of private label peanut butter, jellies and preserves that serves retailers around the country.
Historically, Grove said, Louisville has always been a sought-after market for industrial facilities. “Through the recession, we were one of the only markets in the country to have consistently positive net absorption,” he said. “While other markets’ vacancies were increasing into double digits during the downtime, Louisville’s fell to no lower than 4 percent – still positive, still attracting developers, tenants and users.”
But as the industry came out of the recession, around 2014 or 2015, that 4 percent vacancy meant demand was far outstripping supply, Grove said.
“And we didn’t have much new construction, meaning we couldn’t fill all that new business. We missed out on opportunities because we had so little existing product or even product in the pipeline,” he said. “If you wanted your facility to be near UPS, for example, you were looking at a 12- to 18-month wait.”
As in any supply-and-demand curve, companies are drawn to high-demand markets that are proving to be successful. Yet supply in successful markets tends to be low. It takes time to balance supply with demand.
“But,” Grove said, “once new investment triggered new construction, we’ve seen the most significant availability of industrial real estate probably ever. What we have now is a reasonable supply of existing inventory, and much more coming on board.”
As of the third quarter, there were nearly 125 million square feet of market rentable area in Louisville’s seven submarkets – Southside/Airport, Southern Indiana, Riverport, Northeast, Downtown, Bullitt County and Bluegrass – yet the vacancy rate is a still-low 6 percent, and the average asking lease rate at the end of the quarter was a healthy $3.75 per square foot.
Grove made specific reference to the local automotive market.
“The three big (original equipment manufacturers) in the area (Ford, Corvette, Toyota) are pouring billions of dollars into their facilities,” he said, “and the Toyota facility in Georgetown has now added the Lexus to its production line. All that new investment drives new suppliers.
“A number of Tier One, Two and Three automotive suppliers want to be within 50 to 100 miles of the Toyota plant, and they also want to service the two local plants,” he continued. “Louisville is the best location for them.”