Future Cities
2022 North America Industrial Big Box Review & Outlook: Louisville
March 11, 2022 5 Minute Read
Louisville’s big-box industrial market continued its strong performance in 2021. Louisville is a prime target for any company seeking a distribution operation in the Midwest. Having the world’s fourth busiest air cargo hub, combined with its advantageous geographic location to reach a large percentage of the population in a day’s drive, will continue to attract users to Louisville. Demand from all sectors, combined with five auto-assembly plants in the region, will continue to make Louisville a major market for big-box development.
Demographics
Nearly 30 million people—23% of them in the 18-to-34 age demographic—live within 250 miles of downtown Louisville, with a 2.4% projected growth rate over the next five years. Louisville reaches a higher population concentration within a 250-mile radius than other major industrial markets, including the Inland Empire, Dallas/Ft. Worth, Phoenix, Memphis and Kansas City.
Figure 1: Louisville Population Analysis
Source: CBRE Location Intelligence.
According to CBRE Labor Analytics, the local warehouse labor force of 41,322 is expected to grow by 22% by 2030. The average salary for non-supervisory warehouse workers is $15.13 per hour, 1.5% higher the national average.
Figure 2: Louisville Warehouse & Storage Labor Fundamentals
Source: CBRE Labor Analytics.
*Median wage (1 year experience); non-supervisory warehouse material handlers.
Location Incentives
Over the past five years, there have been 265 economic incentives deals totaling more than $311 million at an average of $13,568 per new job in the Louisville metropolitan area, according to Wavteq.
According to CBRE’s Location Incentives Group, among the top incentive programs offered in Louisville is the Kentucky Business Investment Program (KBI), which provides income tax credits and wage assessments to businesses engaged in manufacturing, agribusiness, headquarter operations, alternative fuel, renewable energy or carbon dioxide transmission pipelines. To qualify, companies must create and maintain an annual average of at least 10 new full-time jobs for Kentucky residents during the length of the incentive agreement.
Another popular incentive program is the Kentucky Enterprise Initiative Act (KEIA), which provides companies with a sales and use tax refund for building and construction materials used to improve real property value. This refund is also available for research & development, data processing and flight simulation equipment.
Figure 3: Louisville Top Incentive Programs
Source: CBRE Location Incentives Group.
Note: The extent, if any, of state and local incentive offerings depends on location and scope of the operation.
Logistics Driver
Louisville Muhammad Ali International Airport was recently named the world’s fourth-busiest air cargo hub by Airport Councils International. The airport is home to UPS Worldport, one of the largest package-handling facilities in the world. E-commerce is increasing cargo flights at the airport, where package volume grew by 5% year-over-year in 2021. As e-commerce’s share of total retail sales continues to increase, more distributors are expected to take advantage of the region’s air cargo capabilities.
E-commerce increasing cargo flights at the airport, where package volume grew by 5% year-over-year in 2021.
Capital Markets
Louisville is one of the most targeted secondary markets for institutional capital, and the area benefits from UPS as a global demand driver and transportation hub. Cap rates for Class A stabilized properties are a record-low 3.75% and likely will fall to the mid-3% range in 2022. Louisville’s strong investment and operating performance will continue to attract capital for both existing properties and speculative developments.
Figure 4: Cap Rate Comparison
Source: CBRE Research.
Supply & Demand
Louisville’s central location is attracting new occupiers, leading to robust demand and a plethora of new development. Leasing activity totaled nearly 10 million sq. ft. in 2021, up by 27% from 2020. Net absorption doubled year-over-year to 7.9 million sq. ft., making Louisville the seventh-ranked growth market (net absorption/existing inventory) in the U.S. Developers delivered 3.6 million sq. ft. of industrial space, nearly 2 million sq. ft. of which was in facilities of 750,000 sq. ft. or more. Continued demand lowered the vacancy rate to 1.5%, the sixth lowest in North America.
Occupier demand was led by 3PLs with a market share of 43%. 3PLs are expanding in droves to take advantage of the market’s central location and many logistics advantages, including affordable rents and proximity to manufacturing.
Figure 5: Share of 2021 Leasing Activity by Occupier Type
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.
Figure 6: Leasing Activity
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.
Figure 7: 2021 Construction Completions vs. Overall Net Absorption
Source: CBRE Research.
Figure 8: Direct Vacancy Rate by Size Range
Source: CBRE Research.
Figure 9: Under Construction & Percentage Preleased
Source: CBRE Research.
Figure 10: Historical First Year Taking Rents (psf/yr)
Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research.
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Contacts
James Breeze
Vice President, Global Industrial and Retail Research
John Morris
President, Americas Industrial & Logistics, Advisory Services
