MARKET INSIGHTLOUISVILLE, KENTUCKY MULTIFAMILY REPORT | THIRD QUARTER 2018

CUSHMAN & WAKEFIELD | COMMERCIAL KENTUCKY LOUISVILLE MULTIFAMILY RESEARCH

The Cushman & Wakefield | Commercial Kentucky Multifamily Research Team, along with Integra Realty Research, provides in-depth coverage of the Louisville Metropolitan Statistical Area. In addition to analyzing multifamily rent and sale trends, these reports examine employment data, key economic announcements, and development pipeline news.

RESEARCH & SALES TEAM

IN THIS EDITION

CRAIG COLLINSSENIOR DIRECTORccollins@commercialkentucky.com

MIKE KEMETHERVICE CHAIR, MULTIFAMILY ADVISORY GROUPmike.kemether@cushwake.com

1LOUI SVI L L E , KEN T UCKYMARKET INSIGHTThird Quarter 2018

The following are select announcements from third quarter 2018:

Average Q3 employment increased by 1,140 jobs.

Average Q3 unemployment decreased to 3.7%.

+0.0 -20% Y O Y B P S Y O Y

ECONOMIC EXPANSION

JOB GROWTH & UNEMPLOYMENT RATE

Walmart is investing $41M to create a new e-commerce fulfillment center in Bullitt County. This new facility is expected to bring 400 full-time jobs to the area.

Radial, the leader in omnichannel commerce technology and operations, announced 100 new full-time jobs at their Bullitt County fulfillment center.

Tier3 Technologies, LLC plans to relocate its Louisville headquarters and expand its workforce in Louisville. The expansion will involve a capital investment of more than $2.4M and will add 62 full-time jobs.

UPS is planning a $3.8M expansion at its Supply Chain Solutions campus. The investment is expected to create 135 jobs for the warehousing and distribution arm of the firm.

New Flyer of America has started operations at its new Bullitt County plant. Since moving into the $40M space in the spring, New Flyer has hired 58 employees to fill the first of 550 jobs they plan to add.

Sazerac Brands, LLC will be opening a new distillery in the former Pillsbury Plant in New Albany. This $66M project will create 110 new jobs.

Santa Rosa Systems is planning a major expansion of its Mt. Washington facility. The $21M expansion is expected to create 300 jobs during the next 10 years.

a

a

a

As of the end of September 2018, unemployment rates in the Louisville area experienced a decrease from 3.9% (as of Q1 2018) to 3.7%. Louisville’s unemployment rate is in line with the national average, which was 3.7% for the same period.

EMPLOYMENT & UNEMPLOYMENT TRENDS

LOUISVILLE JOB GROWTH TRENDS

LOUISVILLE METRO AREA

Q1 2017 Q1 2018 Q3 2018

GMP (% Change) -3.3% 1.6% 2.0%

EMPLOYMENT (% Change) 1.0% 0.0% 0.0%

UNEMPLOYMENT RATE (%) 4.7% 3.9% 3.7%

Source: Bureau of Labor Statistics

EMPLOYMENT IN THOUSANDS

Source: Cushman & Wakefield | Commercial Kentucky

a

a

a

a

-4000

-2000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Q4 Q1 Q2 Q3

2016 2017 2018

2LOUI SVI L L E , KEN T UCKYMARKET INSIGHTThird Quarter 2018

Midwest Real Estate News reported in September 2018, that Louisville is one of the “Midwest cities seeing big swings in apartment rents jumping 6.1% from August to September. Occupancy rates are at 96.5% overall. This is down 1.5% from April 2018 occupancy rates of 96.5%. Highest submarkets are Area 1 (at 98%) and Area 8 (at 98%).

Average rents for 1 BR units are at $797/mo. with average rents for 2 BR units at $923/mo. While rental rates throughout the Louisville Metro are up slightly, rates for both 1 and 2 BR unit rentals should continue to rise.

Average effective rents in the Louisville Metro market have grown from $936/mo. in Q1 2018 to $57/mo. in Q3 2018. These rents are forecast to see modest increases into 2019.

2,467 units were completed in the last 12 months, and over 2,400 units are currently under construction in the Louisville Metro area.

Additionally, over 6,700 units are planned throughout the Metro area, with four submarkets planning over 1,000 units each. Those submarkets are Area 2 (with 1,480 units planned), Area 8 (with 1,140 units planned), Area 5 (with 1,097 units planned) and Area 7 (with 1,089 units planned).

The MSA population is projected to grow by 18% between 2010 and 2040. The projected gain of households is 21% for the same period.

The following are Cushman & Wakefield’s projections over the near term:

MULTIFAMILY TRENDS

HISTORICAL & FORECASTED METRO RENT GROWTH RATES

DEVELOPMENT / INVENTORY

DEMOGRAPHIC FUNDAMENTALS

Average Occupancydecrease of 1.5% from 4/2018

LOUISVILLE RENT GROWTH RATES

95%

MULTIFAMILY FORECAST

VACANCYREN TS P IP EL INE % G ROWTH

Source: AXIOMetrics Forecast is 12-month outlook

2000: 1,025,5982010: 1,235,7082016: 1,293,9532021: 1,320,600

Current%: 34.2Current #: 171,625

Current: $54,546

POPULATION

PERCENT RENTER

HOUSEHOLDS

MEDIAN HOUSEHOLD

INCOME

Respective Average Rental Ratefor 1 and 2 BR units from 10/2017

4% and 6%

3.04%

3.67%

2.86%2.73% 2.78%

1.60%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q3 '18

3LOUI SVI L L E , KEN T UCKYMARKET INSIGHTThird Quarter 2018

Multifamily investment activity for Q3 2018 in the Louisville MSA is down slightly, although there is still a number of large transactions in the market.

Regional and national apartment funds have been the largest active players for acquiring multifamily in the Louisville marketplace in 2018. Private capital also continues to play a major role in the B & C market.

Class A – Jefferson Development Group sold Vinings at Hurstbourne (159 units) to Spirit Investment Partners for $182K per unit. The asset is located in the Shelbyville Road Corridor.

Class A – Broadway Lofts, Ltd. sold The Lofts of Broadway, (83 units) located in the CBD to 3 Capital Group. The sale price was $82K per unit.

Class B – Lafayette Communities sold River Hills Apartments (273 units) to Covenant Capital Group for $68K per unit. This property is located in the Frankfort Avenue/Brownsboro Road Corridor.

The market’s mid-quartile spread is 5.8% to 5.9%, which is down slightly from the last quarter.

INVESTMENT ACTIVITY

NOTABLE SALES

PRICING & CAP RATES

HISTORICAL SALES VOLUME

Source: Real Capital Analytics, Commercial Kentucky | Cushman & Wakefield Research

Source: Real Capital Analytics, Commercial Kentucky | Cushman & Wakefield Research

$0

$100

$200

$300

$400

$500

$600

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Change in Sales (YOY)

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%

9/1/

2014

12/1

/201

4

3/1/

2015

6/1/

2015

9/1/

2015

12/1

/201

5

3/1/

2016

6/1/

2016

9/1/

2016

12/1

/201

6

3/1/

2017

6/1/

2017

9/1/

2017

12/1

/201

7

3/1/

2018

6/1/

2018

9/1/

2018

Avg Cap Rate

Louisville Average National Average

4LOUI SVI L L E , KEN T UCKYMARKET INSIGHTThird Quarter 2018

SUBMARKET OVERVIEW

RENTS & VACANCY BY SUBMARKET

UNDER CONSTRUCTION BY SUBMARKET

Source: Cushman & Wakefield | Commercial Kentucky ResearchNote: Submarkets are defined by Integra Realty Research

Source: Integra Realty Research

0

493

0

493

288

0

872

264

00

100

200

300

400

500

600

700

800

900

1000

$760

$850

$900

$890

$1,025

$1,025

$1,060

$1,200

$725

New Cut Rd

So. Preston Hwy

So. Bardstown Rd

Mid-Bardstown Rd/Taylorsville Rd

Shelbyville Rd

East Brownsboro/Westport Rd

Frankfort Ave/Brownsboro Rd

CBD

Dixie Hwy

Avg Rents

4%

2%

5%

7%

7%

6%

8%

12%

2%

0% 10% 20% 30% 40% 50%

New Cut Rd

So. Preston Hwy

So. Bardstown Rd

Mid-Bardstown Rd/Taylorsville Rd

Shelbyville Rd

East Brownsboro/Westport Rd

Frankfort Ave/Brownsboro Rd

CBD

Dixie Hwy

Vacancy Rate

5LOUI SVI L L E , KEN T UCKYMARKET INSIGHTThird Quarter 2018

SELECT CBD SUBMARKET NEWS

• Jefferson Development Group’s new hotel, apartment and retail complex planned near the corner of Lexington Road and Grinstead Drive has now been named - One Park. Plans call for an apartment building with 581 units, a hotel with 299 rooms, several floors of office space and more than 40,000 square feet of restaurant and retail.

• Investor, i3 Capital Group, acquired The Lofts of Broadway, a converted 1896 warehouse that houses 83 loft-style apartments, in August for $6.8 million.

• Cityscape has stabilized the 300 unit Axis on Lexington.

• Prolific Louisville developer, LDG Development, is seeking rezoning for a large two acre industrial property at 709-712 E. Gray Street and supplemental property at 716 E. Chestnut and 616 S. Shelby Streets, in connection with a proposed multi-story apartment complex. The proposal includes the construction of a 246-unit mix of townhomes and flats.

• Bristol Development is actively leasing their 269-unit Main & Clay Apartments.

• The Edge on 4th is delivering Phase I and Phase II, with move-ins beginning December 1, 2018.

• Omni Hotels & Resorts is actively leasing the 225 apartment units with the highest elevations and rents in the state of Kentucky.

• Poe Companies is scheduled to deliver the 107-unit RiverPark Place, located on the bank of the Ohio River , during the second quarter of 2019.

• Nashville investment firm, Covenant Capital Group, continued their Louisville spending spree with the purchase of River Hill Apartments. The 273-unit complex off Mellwood Avenue sold for $18.5 million.

Copyright © 2017 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 45,000 employees in more than 70 countries help occupiers and investors optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. 2017 marks the 100-year anniversary of the Cushman & Wakefield brand. 100 years of taking our clients’ ideas and putting them into action. To learn more, visit www.cushwakecentennial.com, www.cushmanwakefield.com or follow @CushWake on Twitter.

commercialkentucky.com

Craig CollinsSenior DirectorCushman & Wakefield | Commercial Kentucky 333 East Main Street, Suite 510Louisville, KY 40202 Tel: +1 502 589 5150 ccollins@commercialkentucky.com

Mike KemetherVice Chair, Multifamily Advisory GroupCushman & Wakevield1180 Peachtree Street, Suite 3100 Atlanta, GA 30309 Tel: +1 404 853 5269 mike.kemether@cushwake.com