Lexington, Kentucky Commercial Real Estate Market Year End 2009 Report Lexington, Fayette County At A Glance Population 293,121 Projected 2014 Population 327,112 Employment Population 194,649 Unemployment Rate 7.3% Households 119,592 Average HH Income $65,568 Median HH Income $52,173 Median Age 36 Major Employers University of Kentucky Fayette Co. Public Schools Lexmark International Lex-Fay Urban Co. Government Source: US Census Bureau, 2009 Estimates Photo By Brian Garland Workforce KY, Office of Employment Commercial Sales and Leasing Slowed in 2009. Commercial Real Estate What’s Next for 2010? Vacancy Overview As the country continues to deal with its most pressing economic challenge in many Property Vacancy years, the Lexington commercial real estate market is holding its own. While Type Rate Lexington has seen closings of such national tenants as Linens ‘n Things, Goody’s and Circuit City, it’s market has not been burdened by heavy closings in retail, office CBD OFFICE 13.8% or the industrial sectors. ⇑44.5% Commercial real estate leasing and sales in Lexington will increase in 2010 as the SUBURBAN OFFICE 12.6% general economic climate improves. Lexington’s occupancy totals were relatively stable and the lack of new construction will help the absorption rates rebound. ⇓9.9% As retailers cautiously resume expansion, Lexington’s retail vacancy rates should INDUSTRIAL 11.4% again be in the single digits by yearend 2010. Office Landlords are becoming more ⇓10.9% flexible to meet corporate tenant’s demands and accommodate the changing needs of the office sector. The Industrial market in Lexington remains primarily oriented to RETAIL 10.5% warehouse, distribution and service space with adequate inventory available. ⇑13.3% While confidence in the marketplace is growing, Lexington will have ground to make up in the next couple of years in order to get back to the previous level of Survey includes 371 commercial properties commercial real estate activity. The outlook for commercial real estate in the comprising over 28 Million SF Lexington Metropolitan area is generally optimistic. Al Isaac, President NAI Isaac Commercial Properties Isaac Commercial Real Estate Services, Worldwide. Lexington, Kentucky Summary | Year End 2009 NAI Isaac’s Year End review of commercial real estate activity in the Lexington Metropolitan area highlights activities for the last half of 2009. This report provides an in-depth review of the commercial real estate market, evaluates the market trends and how they may impact future performance. NAI Isaac compiled and analyzed data on approximately 371 commercial properties representing over 28 million square feet of office, retail and industrial premises. Lexington and Central Kentucky’s commercial real estate market continues to experience reduced activity in leasing and sales. There has been an increase in vacancy in all segments of the market but due to Lexington not being overbuilt, occupancy is expected to rebound in 2010. 2010 should also yield opportunistic property purchases as a vast amount of equity anticipates asset re-pricing and REO sales. The University of Kentucky & the large medical community continue to be leaders in new construction. Lexington should weather the recession better than most areas due to its broad- based economy, central geographic location in the state as well as the country, and controlled zoning & development which prevents significant overbuilding in the commercial sector. Office The office market has experienced a decline in occupancy in both the Suburban market Suburban Office Vacancy and the Central Business District. Office construction activity has slowed significantly Historical Comparison which will assist the market in recovery and increase occupancy as the economy 750,000 improves. Office rental rates have declined but should stabilize in 2010. 600,000 Total Total Total Total Rate SUBURBAN Bldgs GLA (SF) Available (SF) Available (%) ($/SF/YR) 450,000 Class A 42 1,812,181 297,659 16.43% $17 - $20 Class B 107 3,504,776 372,707 10.63% $16 - $17 Vacant SF 300,000 Total 149 5,316,957 670,366 12.61% 150,000 Total Total Total Total Rate 0 CBD Bldgs GLA (SF) Available (SF) Available (%) ($/SF/YR) 2006 2007 2008 2009 Class A 4 1,227,381 227,124 18.50% $17 - $20 Class A Class B Class B 24 1,245,820 113,257 9.09% $13 - $16 Total 28 2,473,201 340,381 13.76% CBD Office Vacancy Investment Historical Comparison The Lexington investment market has been quiet in 2009. There is an apparent 300,000 disconnect between buyers and sellers. Buyers are seeking adjusted cap rates based on the revaluation of real estate assets in the current economic environment. Sellers, to a large extent, have not been willing to reduce prices to levels that will stimulate buyers to compete for assets. The exception to this stalemate has been in forced sale 200,000 Vacant SF situations. 2010 should see increased sales with an improving economy. 100,000 Land Vacant land in Lexington is near a historical low and as a result there is a community effort to utilize techniques to encourage growth through urban infill and redevelopment. Farm real estate values for the year are $2,850 per acre which is $750 0 higher than the national average. Development plans to the local government have 2006 2007 2008 2009 been submitted steadily throughout the year, giving 2010 a positive outlook. Class A Class B Retail Retail Vacancy Lexington’s retail market remains slow with little growth planned for 2010. The Historical Comparison Hamburg area has experienced, for the first time, some junior anchor vacancies without a quick turn around time before they are released. Value oriented retailers 750,000 do continue to expand on a selected basis and are now in a position to lease space in centers that were previously priced above value oriented rent parameters. While rates remain stagnant or have seen a decline as property owners become more 500,000 Vacant SF flexible in their terms in order to lease vacancies. Lexington has not experienced an over building of shopping centers so vacancy should decrease and rents rise as the economy recovers. Fayette Mall on Nicholasville Road continues to be the top retail 250,000 destination in the market. Total Total Total Total Rate 0 Bldgs GLA (SF) Available (SF) Available (%) ($/SF/YR) 2006 2007 2008 2009 Regional Malls 1 1,188,795 0 0% $30 - $75 Regional Mall Neighborhood Centers 78 4,465,031 584,165 13.08% $11 - $21 Community Power Center Community Neighborhood Center Power Centers 18 6,178,642 659,457 10.67% $15 - $28 Total 97 11,832,468 1,243,622 10.51% Lexington should Industrial weather the recession Lexington’s geographic location has helped make warehouse/distribution the primary product in Lexington’s industrial market. Current city and University of better than most areas Kentucky efforts are focused on establishing Lexington as a high-tech/R&D center. due to its broad-based Most recent activity has occurred in small office/warehouse properties, repositioning of a few larger distribution and manufacturing facilities and some adaptive reuse of economy, central older bulk warehousing. The industrial market will remain stable for 2010 with gradual absorption of vacancy and limited new construction. geographic location. Total Total Total Total Rate Bldgs GLA (SF) Available (SF) Available(%) ($/SF/YR) Industrial Vacancy Distribution 48 2,250,680 348,050 15.46% $3.50-$6.25 Historical Comparison Manufacturing 13 1,032,161 125,100 12.12% $3.75-$4.75 1,500,000 High Tech/R&D 21 905,539 52,900 5.84% $8.00-$15.00 Bulk Warehouse 15 4,710,446 481,280 10.22% $3.00-$4.50 750,000 Total 97 8,898,826 1,007,330 11.91% 500,000 Vacant SF Multi-family Housing 250,000 Several student housing projects and new market rate complexes have been completed in 2009. The number of units added to the market has caused an increase in vacancies, particularly student housing. Over 1,340 apartment units 0 have been completed since 2004 (per Fayette Co. Building Inspection), primarily on 2006 2007 2008 2009 the west side of UK near South Broadway with a large percentage targeted at students. Due to the lack of existing zoned multi-family land and the lending Distribution High Tech/R&D environment for market rate housing, very few projects will be started in 2010. Manufacturing Bulk Warehouse Committed to Central KY. Connected to the World. Where Can NAI Isaac Help You Next? Committed to Central Kentucky. NAI Isaac is known for its market leadership, knowledgeable and experienced professionals and commitment to customer service. As a full service commercial brokerage company, NAI Isaac offers a comprehensive range of real estate services along with the experience required to handle your commercial real estate needs. Locally, we exclusively represent over 9 million square feet of commercial property with a combined market value in excess of $900 million. Connected to the World. As the exclusive local representative of NAI, the world's most extensive real estate services network, NAI Isaac’s affiliates are virtually everywhere – from Los Angeles to London, Memphis to Mexico City, and Taipei to Toronto – in over 325 offices in 55 countries with 5,000 real estate partners. Our affiliation with NAI keeps our firm on the leading edge of the industry, while allowing us to maintain our local ownership and hometown loyalty. Build on the Power of Our Network.™ The NAI Agent Team focuses on you, helping you make decisions that will benefit your business. That’s how you know that when it’s time to lease, buy, sell or invest – NAI Isaac can help you navigate successfully through real estate transactions and achieve your goals, whether you’re a growing Central Kentucky business or a large multinational firm. 771 Corporate Drive Isaac Suite 300 Lexington KY 40503 859.224.2000 Commercial Real Estate Services, Worldwide. www.naiisaac.com The data compiled in the Lexington Market Report is the legal property of NAI Isaac. Reproduction or dissemination of the information contained herein is strictly prohibited without the expressed written consent of NAI Isaac. This report contains data, including information available to the public, which has been relied upon by NAI Isaac on the assumption that it is accurate and complete. NAI Isaac accepts no responsibility if this should prove to be inaccurate or incomplete. No warranty or representation, expressed or implied, is made by NAI Isaac as to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, and changes in market conditions.