Commercial Real Estate Market

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The key for the real estate recovery is job growth – jobs help fill buildings. ... Lexington is outpacing larger citie
Commercial Real Estate Market Lexington, Kentucky Mid Year 2011 Report Commercial Real Estate Vacancy Overview Property Type

Vacancy Rate

6 Month Change

ƒ RETAIL

8.24%

⇓ Decrease 1.38%

ƒ SUBURBAN OFFICE

14.17%

ƒ CBD OFFICE

16.77%

⇓ Decrease

16.62% ⇑ Increase

1.07% ƒ INDUSTRIAL

16.37%

⇑ Increase

13.45% Survey includes over 430 commercial properties comprising over 30 Million SF

What’s Next for the Global Economic Recovery & Commercial Real Estate? Dr. Peter Linneman, Chief Economist, NAI Global

Typical economic recoveries run about 7 years and it generally takes 2 years into a recovery before we fully start admitting we’re in a recovery. At this point, we are about 1/3rd through the whole boom. Now the issue is: How much deeper will it get? The economy is picking up speed and unemployment is down. We’ve lost 8.4 million jobs and we’ve added 1.8 million jobs, so we’re probably late in the fist quarter of finishing job recovery. The good news? We can see we’re recovering. The bad news? We have a long way to go. We’ve clearly hit bottom in terms of fear, but we haven’t hit top in terms of greed - but we’re moving there very rapidly…and the speed of which we’re running there is stunning. Retail sales, including auto, are returning, but not fully and way off trend. In the last year, as jobs have started coming back to the economy the low end price point sales have been hurt. While sales at the lower price point are still stumbling, sales at the high end are up dramatically. Manufacturing production is back, just not back to normal – and still has a way to go. Inflation can’t help but occurring. Its not when it gets here – it’s here.

Lexington’s Steady Employment Recovery will Boost its Real Estate Sector Al Isaac, President, NAI Isaac Commercial Properties

The key for the real estate recovery is job growth – jobs help fill buildings. Lexington has advantages over many cities that allow it to place in the top rankings for employment growth. Lexington was ranked #1 by Forbes as “The Best City for Finding a Job” in 2011. A 2nd Quarter survey by Manpower revealed Lexington as the metropolitan area where employers maintain the most optimistic forecast for hiring. Lexington is outpacing larger cities in job growth, from Cincinnati & Louisville to Raleigh & Los Angeles. With generous tax incentives to businesses, a metro government, and a more livable small-city feel than larger metros, Lexington will continue to attract companies and residents. While the employment base is slowly improving, it may be so slow that it isn’t obvious. Lexington’s improving commercial real estate sector will directly reflect the city’s employment growth.

Isaac

Commercial Real Estate Services, Worldwide.

Lexington, Kentucky Mid Year 2011 Market Report commercial real estate activity in the Lexington Metropolitan area highlights activities for the first half of 2011. 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 over 430 commercial properties representing in excess of 30 million square feet of office, retail and industrial premises, of which, approximately 3.8 million square feet is currently vacant.

Retail Vacant Space – 8% Mid Yr ‘11 Yr End ’10

Al Isaac President Years Experience: Over 28 years Specialty: Retail & Office Areas of Interest: Investments

Paul Ray Smith, Jr. Executive Vice President Years Experience: Over 25 years Specialty: Retail & Office Areas of Interest: Power & community centers Bruce R. Isaac Senior Vice President Years Experience: Over 25 years Specialty: Retail, Office & Industrial Areas of Interest: Sales, leasing & land dev’t

Overall Decrease ⇓ 1.38%

7.07% 6.0%

400,000 300,000 200,000 100,000

0% 0.16%

0 Regional Mall

Mid Yr ‘11

900,000

Yr End ’10

800,000

Suburban Office Overall Decrease ⇓ 16.62%

Community Power

17.9%

700,000 600,000 500,000 400,000

14.2%

16.1%

300,000

CBD Office Overall Increase ⇑ 1.07%

18.1% 19.9%

14.2%

200,000 100,000

11.3% 13.9%

Sub Office Sub Office Class A Class B

CBD Office CBD Office Class A Class B

Industrial Vacant Space – 16% Mid Yr ‘11

900,000

17.2%

800,000 700,000

Overall Increase ⇑ 13.45%

600,000

19% 19.5%

11.5%

500,000 400,000 300,000

John P. Miller Broker Associate Years Experience: Over 16 years Specialty: Mixed Use and Retail Areas of Interest: CBD development

Neighborhood Center

Office Vacancy– Suburban 14% | CBD 17%

Yr End ’10

Jim Kemper Vice President Years Experience: Over 20 years Specialty: Retail & Office Areas of Interest: Power & community centers

12.8% 12.1%

600,000 500,000

Lexington is the metropolitan area where employers maintain the most optimistic forecast for hiring and Lexington is outpacing larger cities in job growth. Lexington’s improving commercial real estate sector will directly reflect the city’s employment growth.

Senior Contributing Editors

700,000

Vacant SF

NAI Isaac Commercial Properties’ Mid Year review of

19.3%

200,000

11.5%

100,000

7.2% 8.2%

0 Distribution

Manufacturing

High Tech R&D

Bulk Warehouse

Retail The total GLA of the surveyed retail centers in the Lexington area is approximately 11.8 million SF in 109 centers. The bulk of the retail inventory is divided between the Community/Power and Neighborhood Center categories which accounts for approximately 10.6 million SF of the total GLA, with the balance found in one Regional Mall at 1.2 million SF. The majority of the vacancy rests in the Neighborhood Shopping Centers with 12.84% of available space, almost double the amount in the Community/Power Centers. The vacancy decreased slightly from year end 2010.

Retail remains relatively stable as Lexington’s most active commercial real estate market segment.

Buildings

GLA (SF)

Available (SF)

1

1,214,135

1,962

0.16%

Neighborhood

90

4,864,653

624,432

12.84%

Community/ Power Ctr

18

5,747,698

347,662

6.05%

11,826,486

974,056

8.24%

Regional Malls

Total

109

Available (%)

Office The total vacant space of the suburban office market had a substantial decrease of 16.62% since close of 2010. The bulk of this office space is derived from 124 Class B office buildings, representing over 4.2 million SF with over 600,000 SF of vacant space. While the Lexington CBD office market is composed of only 4 Class A buildings, the square footage is nearly the same as Class B. The downtown Lexington market saw a slight increase in vacancy during the 1st half of 2011, reporting 16.77% vacancy, which represents over 431,000 SF vacancy.

Lexington office market recovery trend continues as steady absorption of vacancy is seen in the suburban office market segment while vacancy in the CBD remains stable.

Suburban

Buildings

GLA (SF)

Available (SF)

Available (%)

Class A

45

1,831,502

260,110

14.20%

Class B

124

4,240,558

600,078

14.15%

Total

169

6,072,060

860,188

14.17%

CBD

Buildings

GLA (SF)

Available (SF)

Available (%)

Class A

4

1,229,684

245,205

19.94%

Class B

30

1,343,533

186,266

13.86%

Total

34

2,573,217

431,471

16.77%

Industrial Overall vacant space among industrial facilities throughout Lexington increased, reaching 16.37% vacancy. The bulk warehouse market, Lexington's largest industrial segment, totals over 4.7 million SF of premises with over 823,000 SF vacant. The Distribution market carries a large volume of vacancy with over 551,000 SF available, representing over 19% of the total vacant space in the industrial market.

Largest amount of industrial vacancy is found within the distribution and the bulk warehouse market segments.

Buildings

GLA (SF)

Available (SF)

Available (%)

Distribution

69

2,824,592

551,214

19.51%

Manufacturing

15

1,102,271

126,200

11.45%

High Tech/R&D

21

889,782

72,784

8.18%

Bulk Warehouse

18

4,796,525

823,193

17.16%

123

9,613,170

1,573,391

16.37%

Total

Committed to Central KY. Connected to the World. 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 10 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 Global, 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 350 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.

Isaac

Commercial Real Estate Services, Worldwide.

771 Corporate Drive Suite 300 Lexington KY 40503 859.224.2000 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.