A new report from Commercial Kentucky detailing commercial activity in Louisville shows Class-A office space vacancy in the Central Business District at an astonishingly low 5.0 percent in the fourth quarter of 2009. According to the Marketbeat report, downtown vacancy rates have fared much better than their suburban counterparts registering an overall vacancy rate of 18.8 percent compared to the Central Business District’s overall vacancy rate of 11.8 percent.
“Class A” office space is the highest quality and most expensive available, offering excellent location combined with large, quality interior spaces and greater amenities. In Louisville, easily spotted examples include high-rises such as the Aegon Center, National City Tower, or the ZirMed Towers.
Significant in achieving this low vacancy rate was the completion of the ZirMed Towers and the relocation of ZirMed corporation in the third quarter. Commercial Kentucky points out that the structure represents “the first new construction completion in the Central Business District since the fourth quarter of 2002.”
Commercial Kentucky predicts Downtown could be ready for an increased supply of prime office space but notes that such growth will follow employment increases in the area:
The 5.0 percent direct class A vacancy rate in the CBD should rekindle the discussion of new construction in the downtown area, most notably at Museum Plaza.
Completion of the new downtown arena, scheduled for October, will focus a new round of attention on the vibrancy and excitement of downtown Louisville and its leading role as a place to live, work and play.
Jeff Dreher with Commercial Kentucky explains that Downtown is poised for new office growth but says the economy is still a major hurdle. Availability of lending is lagging behind the recovery and major tenants—a key to any successful venture—are hard to find. He is optimistic in Downtown, however, as it is outperforming the suburbs and most competitor cities.
With the announcement of many major commercial projects in years past, I spoke with several developers to gauge how the report’s findings combined with the current economy is affecting exciting projects such as Capital Plaza, the East Main Street Twin Towers, and Museum Plaza.
Barrister Development Group proposed the $130 million 25-story Capital Plaza for the surface level parking lot at the southeast corner of Market and Seventh Streets in early 2008. Like all major projects, Capital Plaza was put on hold with the onset of the economic crisis, but last year Mike Brown at Barrister told us the project could be under construction in 2010 if the economy improved.
Capital Plaza had interest from an undisclosed east-coast company who wanted to locate a regional headquarters there, but because of the economy is currently not expanding. Brown says the project is not dead but with lending tight and commercial expansion slow, the building will be on hold for the foreseeable future. He says the economy is the bottom line and that a commitment for at least 50 percent of the building’s office space would be required to proceed.
Rob Webber, President of Jefferson Development Group, agreed that finding tenants is the key to major projects moving forward. His company plans a $150 million 18-story structure with twin towers on the corner of East Main Street and Jackson Street most recently home to D & W Silks. Webber says the project is going to move forward but only once 50 to 60 percent of the proposed 680,000 square feet of office space is spoken for.
Speculative construction is out of the picture with such large projects—anything over $100 million. Webber believes his project—already three years in planning—is close to construction as it’s a more traditional and flexible office product easily adaptable to market conditions. One tower could be built first or the heights of either of the two towers could be adjusted depending on demand. Jefferson Development Group continues to talk with potential tenants and says that the recently cleared site shows the project is shovel ready.
Part of what makes pre-leasing office space so difficult is the time it takes to deliver the final product. Â A business must commit to space years ahead of time and be able to predict what the economy will look like when a building is complete. Â Both Mike Brown and Rob Webber agree that in two or three years, Louisville’s economy should be on a more stable footing than today.
The Commercial Kentucky report called out one project by name: Museum Plaza. Â Can Louisville’s most dramatic mega-project – also shovel ready – find some good news in the low vacancy rates? Â Craig Greenberg, developer along with Laura Lee Brown, Steve Wilson, and Steve Poe, says Downtown is definitely ready for more high quality office space to grow existing business and bring in new companies, but the same challenges remain for Museum Plaza as other projects.
Greenberg says the development team continues to work every day on securing financing and tenants to get the 63-story structure back under construction, but admits it’s a challenging job on the current economy. He says while there might not be any exciting news to report today, the team still plans to move forward with Museum Plaza and it’s 300,000 square feet of office space.
It seems, then, that as soon as the economic recovery gains momentum, many of these large-scale proposals could be brought back to life. That’s going to mean employment picks up steam, banks become more willing to lend, and businesses become confident enough to expand in the future. No developer I spoke with has given up on their respective project and all foresee an improved market by the end of 2010 or 2011. Until then, each will be recruiting tenants from home and abroad to sign on with their vision of Downtown.