Lexington, KY - Some encouraging signs in the Lexington commercial real estate market marked the end of 2011, leaving agents wondering what 2012 will bring.
Lexington can boast of several advantages that make it more attractive as a commercial real estate center than many parts of the United States. The city's central location is attractive to manufacturers, distributors and business interests. Easy access to east-west and north-south interstate systems makes motor carrier service easy, and Lexington is within a day's drive of 75 percent of the nation's business activity.
Some say Lexington never feels a recession quite like other cities do.
"I think Lexington is fortunate in that the commercial real estate market is healthier than in many other areas," remarked Al Isaac, president of NAI Isaac Commercial Properties in Lexington. "Some of those areas were significantly overbuilt, so when the recession hit, they had bigger issues to deal with."
Bob Cole of The Coleman Group said Lexington is heading in the right direction.
"Given the stresses of 2009-'10, the [local] commercial real estate market became frozen," he said. "In late 2010 and more specifically in 2011, we started into recovery mode. We absolutely saw a lot of activity last year in suburban and downtown office leasing and industrial flex and warehousing."
Isaac's firm did a mid-year 2011 market report, analyzing data on more than 430 commercial properties (office, retail and industrial) with a total of more than 30 million square feet of space around the Lexington metropolitan area.
The report suggests that if there is one aspect of commercial real estate that Lexington currently excels in, it would be in suburban leased office space. The suburban vacancy rate was just over 14 percent. But what is significant about that figure is how much it dropped.
"It was a 17 percent decrease from the previous survey at the end of 2010," said Isaac. The central business district's office vacancy rate was 17 percent, up one percent.
Veteran real estate agent Billy Smith at The Gibson Company said he is amazed at the amount of office space leased in the past few months.
"I think Lexington didn't suffer as much as other communities. There are many companies that want to be in this atmosphere. They like our local economy. People want to come to Lexington to do business," Smith said. "It's where we are located and our quality of life that sets us apart."
Cole agreed with that assessment. "We're also a college town with a strong medical base. A lot of the office tenants we leased space to last year were physician or physician-related businesses."
Isaac said Lexington's office condo market was overbuilt for a time, not because there was a demand, but because financing was easy then. Now, vacant condos are being absorbed, and he sees very little speculative building going on in town.
The survey indicates that industrial space is not filling up very quickly. Lexington has about a 16 percent vacancy rate, up nearly 14 percent since the last survey. Smith said that in a recession, manufacturing starts up a little slower than professional services do.
"It's a little slow, a little movement, and I don't see a huge increase coming in 2012," Smith explained. "Usually, when people are going to move in, we would know about it by now. So we'll see people coming to look at sites in mid-year while planning to set up for next year."
The NAI Isaac report estimated Lexington's retail vacancy rate at 8.25 percent, down about 1 percent.
"Vacancy rates are sometimes misleading," Isaac said. "They can be made up of vacancies in areas where people don't want to be. Look at our popular corridors, there aren't many vacancies. Most retail vacancies occur where stores never should have been built or are very old and functionally obsolete projects."
"It's about the haves and the have-nots.," Cole said. "If you have a high-profile Nicholasville Road location, you probably did pretty well. If you're in some older retail products, you didn't."
Local agents know that national tenants are looking to break into our market. Adequate space is needed.
"In the past four or five months I have taken more phone calls from businesses - not existing ones here, but others on the sidelines who are looking to get involved. That should be indicative of good things to come," said Greg Leveridge of Haymaker/Bean Commercial Real Estate.
Leveridge is watching developments with Rupp Arena and the Lexington Convention Center. He is very much involved in properties in the nearby Distillery District, which would benefit from an enhanced arts and entertainment downtown.
Cole predicted a continuation of the recovery. He said there is a lack of robust development because the banks aren't lending as readily as before.
"The local banks are taking steps to provide credit to guys like myself and others who are acquiring, repositioning and redeveloping properties," he said.
In the meantime, "we're absorbing the space that exists, backfilling what we have, and that will remain constant," Cole concluded.