Paul Ray Smith, Jim Kemper and Bruce R. Isaac

For 2004, the Lexington, Kentucky, market is expected to be stable with selective growth in certain categories. There will be only a few new office projects in the suburbs and none in the central business district. No significant speculative construction of industrial or flex space is anticipated. The retail market continues to benefit from the regional retail trade area that Lexington serves. The lack of retail-zoned land continues to provide challenges in creating opportunities to expand the retail market. The Nicholasville Road corridor and the Hamburg Pavilion area continue to be the areas in highest demand.

Office

Suburban office land continues to be in demand in Lexington with new projects occurring within the Beaumont, Hamburg and Wellington developments. These projects contain the majority of the zoned professional office lots presently available in Lexington.

At Beaumont Centre in southwest Lexington, local builder Schneider-Woods Development continues to have success in building office condominiums to complement the existing office projects within this mixed-use development.

Numerous new office projects were recently completed within the Hamburg Place development. In a joint venture with the Madden Family, Miller-Valentine Realty of Dayton, Ohio, has finished construction of Hamburg Place, a 75,000-square-foot, speculative, Class A office building. Louisville, Kentucky-based Steier Development has completed Phase I of Hamburg’s first office condominium project, the Stone Crest Office Condominiums, and Phase II is under construction. Quest Engineering has completed its new corporate headquarters, and Credit Bureau Systems is building a new office facility for its Lexington branch.

Within the Wellington development, located in south Lexington, local contractor The Hargett Corporation is continuing construction of office condominiums and actively pre-leasing space for future office buildings within the development.

Existing suburban office projects have fared well in 2003 and have enjoyed an increase in demand for Class A space in most size ranges. Occupancy levels have remained strong and rental rates have not been reduced. The present suburban office market is estimated to have approximately 293,812 square feet of vacant space and the vacancy rate is estimated to be 9.95 percent.

Recent activity in the CBD has been dominated by law, accounting and financial institutions. The current CBD office market is estimated to have approximately 302,909 square feet of vacant space and a vacancy rate estimated at 12.76 percent.

— Paul Ray Smith, executive vice president, NAI ISAAC Commercial Properties

Retail

The hotbed of retail activity for 2004 will continue to be the Nicholasville Road corridor and the Hamburg area. Nicholasville Road is still the primary regional shopping corridor for Lexington and its expanded retail trade area.

Due to the lack of available retail land in Lexington, developers are looking in north Jessamine County for new retail developments or are attempting to rezone existing medical or office sites for retail use. Two retail centers are underway in Jessamine County south of Man O’ War Boulevard: Commerce Center, a Patrick Madden development, is a 300,000-square-foot center anchored by Kohl’s, and site work has begun for Bellerive Development’s Brannon Crossing Centre, a mixed-use, multi-phase center on U.S. 127 that is scheduled to be available in late 2004. Lexington continues to have a demand for big box sites in the Nicholasville Road corridor.

Retail development is also continuing in the Hamburg development at the intersection of Man O’ War Boulevard and Interstate 75. Hamburg Pavilion welcomed H.H. Gregg, Carabba’s Italian Grill, Chick-fil-A, Ethan Allen and Walgreens to its retail lineup. Sir Barton Place, a 300,000-square-foot center next to Meijer at Hamburg Pavilion, saw Talbot’s and Johnny Carino’s open this year and construction has begun on Lexington’s second Circuit City. Additional anchors should begin construction soon. Near Hamburg Pavilion is Pleasant Ridge Park, a Pleasant Ridge LLC development, which opened Lexington’s second Outback Steakhouse.

Most neighborhood centers continue to enjoy stable occupancy levels and have not seen a decline in rental rates despite the uncertainty in the economy. B.C. Wood Companies has redeveloped Eastland Shopping Center, Lexington’s first large shopping center, consisting of 355,000 square feet. NAI ISAAC Commercial Properties is underway with the redevelopment of Lexington’s newest Southside center, the 107,000-square-foot Keithshire Place (formerly Clays Mill Shopping Center) with Phase III now under construction.

With a total gross leasable area of approximately 8.73 million square feet, the present retail vacancy rate is estimated to be 7.4 percent, representing approximately 650,311 square feet of available retail space in Lexington.

— Jim Kemper, vice president, NAI ISAAC Commercial Properties

Industrial

Lexington’s industrial market primarily consists of distribution and light industrial space. Interstates 75 and 64 intersect in north Lexington and provide access to 60 percent of the total U.S. population within a day’s drive. Presently, Lexington has an ample supply of larger blocks of space (25,000 to 100,000 square feet) but activity is picking up in this size range with the recent sales of the Huttig facility, 76,000 square feet; and Merchant Distribution Facility, 114,000 square feet. Additionally, the sale of the former Contractor’s Sales and Rental building, 100,000 square feet, is pending, and NSG Glass recently leased 105,000 square feet on Russell Cave Road. There appears to be an undersupply of space in the 10,000 square feet and under range.

The balance of recent activity in the industrial market has consisted mostly of small users in the 2,000- to 10,000-square-foot range leasing space or buying land and building their own facilities.

The proximity to I-75/64, the continued strength of Toyota Motor Manufacturing — which is located in Georgetown, Kentucky, approximately 14 miles north of Lexington — and the auto-related suppliers it attracts for just-in-time delivery should ensure that the demand for space in Lexington’s north and northwest industrial corridors will continue to rebound over the next 6 to 12 months.

Joe Hacker, a local developer, recently submitted a zone change request for approximately 315 acres located between Newtown Pike and Russell Cave Road in north Lexington. The property is currently zoned AU (agricultural) and the request is to rezone to ED (economic development.) The ED zoning will allow for various office users and industrial manufacturing, warehousing and distribution users and is consistent with the use projected in the city’s comprehensive growth plan.

Lexington reports approximately 7.91 million square feet of industrial/warehouse space, of which approximately 1.09 million square feet is available. The vacancy rate is estimated to be 13.82 percent.

Kentucky is the only state with two worldwide cargo hubs — UPS and DHL Worldwide Express. Kentucky has the lowest overall cost of doing business in the eastern U.S., according to Economy.com. Electric power costs in the industrial sector rank the lowest in the nation. Kentucky ranks fourth in the country in total light vehicle production with four of the top 10 cars and trucks in U.S. production, as well as the Corvette. Also, Kentucky is the Number 1 state in the primary aluminum industry, with nearly 150 aluminum facilities and $2.6 billion worth of shipments and tied for 19th in the “20 Hottest Plastics Locations in the World” ranking, as reported in the August 2003 issue of Business Facilities.

— Bruce R. Isaac, SIOR, CCIM, senior vice president, NAI ISAAC Commercial Properties


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