Is Louisville one corporate headquarters away from an office market explosion?

Louisville lacks that one elusive corporate headquarters that could trigger an explosion in the city’s office market.

By Marty Finley  –  Reporter, Louisville Business First

Feb 5, 2015 Updated Feb 6, 2015, 12:25pm EST

That’s the opinion of Brent Boland, vice president of asset management for real estate investment trust TIER REIT, who was a panelist at the 2015 Real Estate Economic Forecast Thursday at The Olmsted on Frankfort Avenue.

Boland was one of a series of panelists who discussed the forecast of the commercial real estate market during the conference, hosted by Integra Realty Resources, the Building Industry Association of Greater Louisville, the Kentucky Chapter of CCIM and the Louisville Apartment Association.

Boland joined Bill Weyland of City Properties Group LLC and David Hardy, CBRE Group Inc.’s managing director for Kentucky, in discussing an office market that has seen a rebound with deals such as Computershare Inc., a global financial services firm, moving to Meidinger Tower downtown and a partnership between the University of Louisville Foundation and NTS Realty Holdings to construct office space in the suburbs.

Boland, who also manages properties in cities such as Columbus, Ohio, and Nashville, Tenn., said Louisville’s office portfolio has remained solid over the years but remains in the middle of the pack compared with other cities where TIER REIT has a commercial real estate presence. Nashville, he said, has a hot office market that Louisville has been unable to compete with, noting that Nashville has elements such as country music and an NFL franchise that makes it more attractive to companies.

Weyland said companies that attract millenials and younger workers are taking a closer look at downtown Louisville and want to be somewhere with an urban feel. Weyland said Louisville’s prominent food and restaurant scene and its lower office rental rates, compared with larger cities, also is an asset in attracting companies.

But Weyland said downtown has its limitations, including antiquated buildings that lack the bandwidth needed to attract technology companies.

Yet he believes the downtown office vacancy rate, which has climbed as high as 18 percent in recent years, will start coming down more as developers and investors take risks on downtown buildings. He said he envisions some downtown buildings changing hands and being redeveloped soon with more modern amenities, though he did not elaborate.

He also said companies looking at Louisville rarely consider both the downtown and suburban markets.

“They know where they want to be,” he said.

Weyland has been heavily involved in downtown redevelopment, including the Louisville Glassworks building in the 800 block of West Market Street. He most recently has taken on a project to develop The Edison Center, a technology center on property at South Seventh Street once owned by Louisville Gas & Electric Co.

Weyland said the city should learn from the ComputerShare deal and chase more companies centered on technology as a way of targeting its office vacancy. The state also needs to consider tax reform to make the environment more business friendly, he added.

“That puts us at a distinct competitive disadvantage,” he said.

Retail market

Justin Baker, a partner and principal broker of TRIO Commercial Property Group in Louisville, moderated the panel that addressed the city’s retail market. Charles Dahlem, president of Dahlem Realty Co. Inc., and John Hollenbach, a principal with real estate development company Hollenbach-Oakley LLC, also were on the panel.

Baker said the retail market was one of the first markets locally “to take a scud missile to the front of the boat,” but he said activity has picked up significantly as chains and local retail establishments are expanding, building and showing interest in Louisville.

Hollenbach and Dahlem echoed Baker, saying there appears to be a heightened confidence from both retailers and consumers to spend money in the market. Hollenbach also added that more chain establishments are giving Louisville a look.

“We’re not really getting overlooked as I think we once were,” he said.

Panelists said chains that are finding success in today’s national retail market include specialty grocers, fitness companies such as Planet fitness and pharmacies. The panelists noted that chains struggling to find footing are those with brick-and-mortar establishments that sell goods that readily available online, such as clothing and electronics.

Likewise, local companies, such as Heine Brothers Coffee and The Comfy Cow, have been busy in expanding their business reach, the panel said.

In response to a question from the audience, the panelists said they expect e-commerce to grow in popularity as more people shift their consumer spending online, but Dahlem said companies recognize they still need a brick-and-mortar presence. To respond to emerging trends, he said many companies are moving away from large 200,000-square-foot big box stores in favor of a scaled down model of 80,000 to 85,000 square feet.

Dahlem noted that unlike other real estate markets, retail is dependent on critical factors such as household income, traffic count and demographics in an area. Those factors may push some retailers to turn away from Louisville, Dahlem said.

“It’s not that they don’t like us,” he said. “It’s just a simple math problem.”

Industrial market

Unlike the retail and office markets, the industrial market did not see drastic increases in vacancy and lack of activity during the recession, and its stability has only increased in the past year, with heightened activity in Bullitt County and Southern Indiana alongside some speculative warehouse space opening up in Louisville.

Bob Duane, president of Duane Realty & Development; Ken Payne, president and CEO of Main Street Realty; and Lee Wilburn, president of industrial development firm Crossdock Development Inc.; addressed the stability of the local market, which has kept them busy managing and developing new space.

The three said they look at the credit worthiness of a tenant and typically like to attract longer-term leases. Duane said he’s willing to consider a shorter-term lease if he has permanent financing for a facility.

Phil Charmoli, an industrial brokerage advisor with Commercial Kentucky Inc., moderated the panel and asked the panelists to describe the pros and cons of industrial development in Kentucky and Indiana.

Wilburn has been heavily involved in numerous construction projects at Jeffersonville’s River Ridge Commerce Center. But he said he has been successful on both sides of the river, noting “we like to be where our customers want to be.”

But some of the panelists noted that Indiana’s tax structure sometimes is friendlier to businesses and that its status as a right-to-work state can be detrimental for Kentucky when businesses are looking to find a new location. A bill proposed in the Kentucky General Assembly would establish a right-to-work law. The bill would allow workers to join unionized companies without joining the union, but it is not expected to pass this year.

Panelists agreed that the completion of the Ohio River Bridges Project should produce industrial growth on both sides of the river.

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