JLL Louisville Office Outlook - Q1 2017

JLL Research

Louisville

Office Outlook

An in-depth look at the Louisville office market. Analysis includes sales, construction and employment.

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Q1 2017

Insight

The verdict Louisville had been waiting for was delivered in the first quarter as a federal court ruling blocked the Humana and Aetna merger. With about 12,500 local employees Humana is one of the largest employers in Louisville and has an even greater presence regarding real estate with a significant footprint of both leased and owned office space. Efficiencies from the deal would have likely resulted in job losses and further consolidation of Humana’s office space in Louisville to their locations downtown.

The Louisville market saw positive leasing activity through in the first quarter, in addition to two large national wins for the market. National site selection searches led Diversified Consultants to sign a lease for 40,000 square feet, while Ernst & Young announced their intent to find space for 125 employees in the Central Business District. Local players such as Scoppechio and Atria Senior Living signed a 41,000-square-foot lease and a 16,000-square-foot expansion respectively driving activity in the Central Business District. This uptick in leasing activity further solidifies the strength of the Louisville office market to grow organically through the local business community as well as attract new-to-market tenants.

OutlookWith a strong start to 2017, the Louisville office market looks well positioned to build off the momentum and deliver a robust 2017. As tenants in the market continue to grow alongside an improving economy, the Class A office market is projected to tighten in both suburban and downtown submarkets. As this trend leads to more available of space in Class B assets, the market will continue to favor tenants as more affordable options become available. This pattern will make Louisville an attractive option for call centers and business services users such as the two significant announcements made in the first quarter by Diversified Consultants and Ernst & Young. Overall the market is poised for a healthy 2017.

Fundamentals Forecast

YTD net absorption 93,947 s.f. ▲Under construction 132,500 s.f. ▲Total vacancy 10.4% ▼Average asking rent (gross) $17.55 p.s.f. ▲Concessions Falling ▼

-100,000

100,000

300,000

500,000

2013 2014 2015 2016 YTD

2017

Supply and demand (s.f.) Net absorptionDeliveries

National site selection wins, organic growth drive leasing in first quarter

13.6% 13.1% 12.8% 12.2%

10.4%

2013 2014 2015 2016 2017

Total vacancy

$10.00

$15.00

$20.00

$25.00

2013 2014 2015 2016 2017

Average asking rents ($/s.f.) Class AClass B

• The first quarter saw two significant leasing announcements when two national location searches selected Louisville for their operations.

• Two new speculative projects located in Northeast entered the development pipeline, continuing the trend of development in that area.

• Multiple tenants relocating in the first quarter sought new space through acquisitions of existing buildings as well as constructing their own.

Louisville Office Outlook


ClassInventory

(s.f.)

Total net

absorption

(s.f.)

YTD total net

absorption

(s.f.)

YTD total net

absorption

(% of stock)

Direct

vacancy (%)

Total

vacancy (%)

Average

direct asking

rent ($ p.s.f.)

YTD

completions

(s.f.)

Under

construction

(s.f.)

CBD Totals 9,881,814 -8,705 -8,705 -0.1% 9.0% 9.2% $17.03 0 0Hurstbourne Totals 3,314,538 23,370 23,370 0.7% 10.7% 11.3% $19.88 0 0

Middletown/Eastpoint Totals 1,481,221 -20,314 -20,314 -1.4% 10.6% 10.6% $19.62 127,500 32,500

Plainview Totals 1,661,203 61,400 61,400 3.7% 15.1% 15.1% $15.29 0 0

River Road/Brownsboro Totals 723,205 13,780 13,780 1.9% 8.5% 9.6% $22.16 0 100,000

South Central Totals 1,406,623 24,416 24,416 1.7% 9.3% 11.6% $17.55 0 0

Southeast Totals 514,962 -36,986 -36,986 -7.2% 20.9% 20.9% $17.98 0 0

St. Matthews Totals 1,332,933 24,914 24,914 1.9% 7.0% 7.0% $17.55 0 35,000

Suburban Totals 8,586,790 102,652 102,652 1.2% 11.1% 11.8% $17.98 127,500 132,500

Louisville Totals 18,468,604 93,947 93,947 0.5% 10.0% 10.4% $17.55 127,500 132,500

CBD A 4,295,069 -12,033 -12,033 -0.3% 11.9% 12.2% $19.03 0 0Hurstbourne A 2,705,365 20,959 20,959 0.8% 9.7% 10.5% $21.55 0 0

Middletown/Eastpoint A 930,892 -15,075 -15,075 -1.6% 13.4% 13.4% $20.26 127,500 32,500

Plainview A 504,033 0 0 1.4% 0.0% 0.0% $18.87 0 0

River Road/Brownsboro A 577,426 8,342 8,342 0.0% 9.9% 11.3% $22.69 0 100,000

Southeast A 460,734 -3,986 -3,986 -0.9% 13.2% 13.2% $21.32 0 0

St. Matthews A 712,694 1,655 1,655 0.2% 5.7% 5.7% $20.12 0 35,000

Suburban A 4,213,683 14,226 14,226 0.3% 10.6% 11.2% $21.32 127,500 35,000

Louisville A 8,508,752 2,193 2,193 0.0% 11.3% 11.7% $20.12 127,500 132,500

CBD B 5,586,745 3,328 3,328 0.1% 6.7% 6.9% $14.31 0 0Hurstbourne B 609,173 2,411 2,411 0.4% 14.9% 14.9% $14.94 0 0

Middletown/Eastpoint B 550,329 -5,239 -5,239 -1.0% 5.8% 5.9% $17.28 0 0

Plainview B 1,661,203 61,400 61,400 3.7% 15.1% 15.1% $15.29 0 0

River Road/Brownsboro B 145,779 5,438 5,438 3.7% 3.1% 3.1% $15.50 0 0

Southeast B 1,406,623 24,416 24,416 1.7% 9.3% 11.6% $14.76 0 0

South Central B 54,228 -33,000 -33,000 -60.9% 87.0% 87.0% $15.30 0 0

St. Matthews B 620,239 23,259 23,259 3.8% 5.7% 8.5% $14.91 0 0

Suburban B 4,373,107 88,426 88,426 2.0% 11.6% 12.4% $15.30 0 0

Louisville B 9,959,852 91,754 91,754 0.9% 8.9% 9.3% $14.91 0 0

Q1 2017

Statistics



This report analyzes sales over the last 12 months.

$370,206,519

17

$93

-

68.2%

31.8%

6.5-7.5% 0 - $0

6.5-7.5% 0.0% 17 $185,103,260

Notable sales transactions

RBA (s.f.) $ p.s.f. Sale date

211,236 $227 Jun-16

234,292 $90 Oct-16

208,906 $99 Dec-16

137,932 $100 Jun-16

98,933 $100 Jun-16

64,767 $143 Jun-16

102,460 $90 Oct-16

33,524 $227 Jun-16

33,080 $227 Jun-16

133,700 $47 Dec-16

Transactions details

Number of partial interest

transactionsCore Class A CBD

Core Class A suburbanNumber of domestic

buyers

Foreign capital

Average partial interest

acquired

Number of foreign

buyers

Domestic capital

Average Class A price p.s.f.

Sales activity by building class12 months at a glance

YTD sales volume

Number of transactions

Average Class A cap rate

Sales volume $ by submarket

Urban sales volume as % of

total

Suburban sales volume as %

of total

Cap rate range

Physicians Realty Trust Catholic Health Initiatives $47,910,534

Building Buyer Seller Sale price ($)

Jewish Outpatient Care

Jewish Medical Plaza II

Hurstbourne Place

Spring River Business Park

Jewish Medical Center East

$9,280,000

Hurstbourne Park Viking Partners Tier REIT $9,200,000

Top buyers (s.f.)

Landmark Building Global X Tax Asset Solutions Blue Equity $6,283,900

St Mary's Caritas Medical III Physicians Realty Trust Catholic Health Initiatives $7,609,948

St Mary Caritas Medical II Physicians Realty Trust Catholic Health Initiatives $7,509,160

St Mary Caritas Medical I Physicians Realty Trust Catholic Health Initiatives

$21,100,000

$20,600,000

$13,815,977

$9,909,637

Top sellers (s.f.)

Physicians Realty Trust

Physicians Realty Trust

The Hocker Group

Viking Partners Tier REIT

Paul J Bickel

Catholic Health Initiatives


36%

19%12%

8%

8%

7%3%3%3%2%0%

Physicians Realty TrustViking PartnersThe Hocker GroupMarket Street PartnersGlobal X Tax Asset SolutionsCapital Investment GroupFetzer Lofts LLCStatewide Mortgage

36%

19%12%

8%

8%

7%3%3%3%2%


Tier REIT

Paul J Bickel

First Trust Restoration Partners

Blue Equity

$7,890,625

$20,600,000

$24,399,108

$30,300,000

$50,163,953

$51,749,574

Middletown/

Eastpoint

River Road/

Brownsboro

South Central

Hurstbourne

CBD

St. Matthew's

$50,900,000

$134,203,260

$185,103,260

$0

$40,000,000

$80,000,000

$120,000,000

$160,000,000

$200,000,000

A B Total

Q1 2017

Sales


36%

19%12%

8%

8%

7%10%

Physicians Realty Trust Viking Partners

The Hocker Group Market Street Partners

Global X Tax Asset Solutions Capital Investment Group

Other

36%

19%12%

8%

8%

7%10%

Catholic Health Initiatives Tier REIT

Paul J. Bickel First Trust Restoration Partners

Blue Equity Physician Realty Trust

Other


This report analyzes all office developments under construction & new deliveries in the last 12 months > 30,000 s.f.

Total available at delivery (%) 29.1%

Total leased at delivery (%) 60.9%

Average floor plate (s.f.) 24,727

Average number of stories 3

Average asking rent ($ p.s.f.) $24.25

Notable deliveries past 12 months

Building Submarket RBA (s.f.) DeliveredLeased at

delivery (%)

500 N Hurstbourne 120,000 Q2 2016 33.0%

2403 Terra Crossing Blvd 92,500 Q1 2017 100.0%

295 Hubbards Lane 45,000 Q3 2016 22.0%

12450 Lake Station Place 38,400 Q2 2016 75.0%

Old Henry Crossing #5 35,000 Q1 2017 87.7%

Total pre-leased (%) 0.0%

Total under construction (s.f.) 132,500

Total under renovation (s.f.) -

Average floor plate (s.f.) 28,750

Average asking rent ($ p.s.f.) $21.50

Notable projects under construction

Building RBA (s.f.)Estimated

delivery

Pre-leased

(%)

5000 Chamberlain Lane 100,000 Q2 2018 0.0%

Eastpoint Centre 32,500 Q2 2017 0.0%

Middletown/Eastpoint

Hurstbourne

St. Matthews



SpeculativeThe Schroering CompanyMiddletown/Eastpoint

River Road/Brownsboro McMahan Group Speculative

Owner/developer Spec or BTSSubmarket

Under construction/renovation

132,500Under construction/renovation (s.f.)

At a glance

Upcoming deliveries by year (s.f., excludes YTD completions)

Spec/BTSOwner/developer

BTS

SpeculativeUofL Foundation

Main Street Realty

Speculative

BTSThortons

Speculative

Hoagland Commercial

Terra Crossing, LLC

Historical completions

Deliveries

At a glance

330,90012-month deliveries (s.f.)

32,500

100,000

0

20,000

40,000

60,000

80,000

100,000

120,000

2017 2018

175,000

260,000248,000

328,400

127,500

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2013 2014 2015 2016 2017

Q1 2017

Construction



Q1 2017

Construction


Delivered: Q2 2016 Est. Delivery: Q3 2017

Address: 500 N. HurstbourneSquare feet: 125,000Tenant: MultipleOwner: NTS Development

Address: 3205 Eastpoint CentreSquare feet: 32,500Tenants: TBDOwner: The Schroering Company

Est. Delivery: Q1 2018

Address: Old Brownsboro Crossing Square feet: 100,000Tenant: TBDOwner: The McMahan Group


23%

13%

13%13%

12%

10%

7%

Trade, Transportation & Utilities

Educational & Health Services

Professional & Business Services

Manufacturing

Government

Leisure & Hospitality

Financial Activities

Mining, Logging & Construction

Other Services

Information

Q1 2017

Employment


4.7%U.S. unemployment

1.5%U.S. 12-month job growth

4.7%Louisville unemployment

2.8%Louisville 12-month job growth

5.0%Kentucky unemployment

1.6%Kentucky 12-month job growth

0.0%

0.7%

1.4%

2.1%

2.8%

3.5%

2013 2014 2015 2016 2017

Louisville U.S.

-300

100

100

100

700

1,100

1,600

4,400

4,700

5,300

-2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 6,000

Government

Information

Leisure & Hospitality

Other Services

Financial Activities

Educational & Health Services

Mining, Logging & Construction

Trade, Transportation & Utilities

Manufacturing

Professional & Business Services

-2.0

3.0

8.0

2013 2014 2015 2016 2017

Professional & Business Services Information

Government Financial Activities

0%

4%

8%

12%

400,000

500,000

600,000

700,000

800,000

2013 2014 2015 2016 2017

Employment Unemployment

Employment vs. unemployment rate

Employment by industry Office employment trends (12-month change, 000s)

Job growth by sector (12-month change)

Job growth (12-month change)

Job growth by sector (12-month change)

© 2017 Jones Lang LaSalle IP, Inc.

All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Andrew BatsonVice President, Director of Research+1 216 937 [email protected]

Ross BratcherResearch Analyst+1 513 719 [email protected]

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. AFortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.

About JLL Research

JLL’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions.

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JLL Louisville Office Outlook - Q1 2017

Real Estate

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