Louisville Commercial Real Estate 3rd Qtr 2011 Review of Leasing

In my previous post, I examined YTD Commercial Real Estate Sales through 3rd Quarter 2011.   In this post, I will examine YTD Commercial Real Estate Leasing.

The Numbers

According to KCREA (Kentucky Commercial Real Estate Association), 299 total leases were reported from January 1, 2011 through September 30.    Because of privacy concerns, the dollar amount of these leases is normally not available.     This equated to an average of 7.7 leases signed per week.

Leasing Data breaks down as follows: (note: figures are 2011 YTD figures through 3rd Qtr)

• Industrial Leases:  98 transactions totaling 779,929 SF; Avg leased area 7958 SF; Median leased area 3,862 SF; Avg asking rate for Industrial Space $3.44 per SF
• Office Leases:  104 transactions totaling 266,374 SF; Avg leased area 2,561 SF; Median leased area 1,640 SF; Avg asking rate for Office Space $16.12 per SF
• Retail Leases: 96 transactions totalign 324,533 SF; Avg leased area 3,381 SF; Median leased area 1,950 SF; Avg asking rate for Retail Space $9.82 per SF

(A note about KCREA figures - Information on KCREA is provided by and maintained by the individual brokers.   The accuracy of the information is dependent on the individual brokers keepign their information current.    Also transactions outside of the members of the KCREA community will not appear.   Accordingly, while this information is useful, it cannot be considered to be a complete and accurate census of Lousiville Commercial Real Estate activity.   Never-the-less, it is probably the best information available and I believe that it is still very useful in examing the Louisville Commercial Real Estate market.)

(side note on dollar value of leases:  From existing data, it is difficult to estimate the dollar amout of leasing activity.    If we were to use the average asking price and the square feet leased, we could come up with an estimate of approximately $4.3 Million for Office, $2.7 Million for Industrial, and $3.2 Million for Retail.   However being based on asking prices, you would have to assume these figures would be high.   Also, this estimate would assume basically 1 year leases.  In today's market, several leases may be one year but historically, they tend to be longer and information on KCREA is not complete enough to give us this insight.) 

What this means

The thing that sticks out to me is the size of the leased area.  In every category, there is a big discrepancy between the average size leased and the median amount of space leased.    This indicates that each category has a few large transactions that comprise the lion's share of the activity.  Looking at the median numbers, we see that more than half of all of the Industrial transactions were for less than 4,000 SF; more than half of the Office transactions were for less than 1,700 SF and finally more than half of the Retail transactions were for less than 2,000 SF.  These are very small transactions especially when we consider that the transactions involving smaller spaces also typically involve shorter lease terms.  

As with Sales, the other important thing to consider here is the amount of inventory.   Presently on KCREA, there are approximately 11,000 listings.  (this includes both lease and sales listings.)  Inventory has increased significantly over the last couple of years.    As with sales, with only 299 leases recorded YTD, it would take years to clear out all of the existing inventory.   The successful Landlords will recognize that they MUST do everything possible to be in the top 5% to 10% of listed properties, in condition and price.

Crystal Ball

If we were to base our predictions for the future on the figures we have seen to date, one would expect another difficult year in Commercial Real Estate leasing.   My experience and word on the street however may indicate that we will have some positive news in the works.

• Office - For the first time in many years, many of the larger Tenants have been looking around for Office space.   These larger leases can take quite a while to finalize but several deals are already rumored to be in their final stages.   These should begin to show up in the figures in the next 6 months or so.  
• Industrial - Industrial Leasing has been fluctuating somewhat but if manufacturing continues to recover, we can expect this to improve as well.   The Industrial sector should benefit tremendously as Ford and GE add several thousand new manufacturing jobs they have announced. 
• Retail - With retail, I have been seeing some of the retailers beginning to look around again and while some leasing seems to be occurring, activity in this sector seems to be trailing Office and Industrial.   Most of the activity seems to be smaller retailers with very few big box deals being done.

Apparently with that, I have overheated my crystal ball as it is getting cloudy.   Time will tell.

If you would like some help divining the future of your commercial real estate or if you need help finding some property to lease or buy, I would love to help.   Give me a call or shoot me an e-mail.

By the way, I am sure that my managing broker would appreciate me clarifying that the opinions expressed here are my own and do not necessarily reflect those of Commonwealth Commercial Real Estate, its staff, employees, agents, or brokers (other than me, of course).  If you have another opinion and would like to express it or ask a question, please feel free to post a comment.   I welcome other points of view, although I do not welcome inappropriate comments or language.  In those cases, I reserve the right to delete them.

Hope you have a great day.

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299