Louisville Office Market Report

Suburban submarkets post record compression. Louisville’s nationally low office vacancy rate has been driven by compression in Class B/C properties, which comprise most of the stock. In the CBD, Class B/C vacancy fell about 200 basis points last year, approaching 8 percent. In some smaller submarkets, such as St. Matthews and Old Louisville, segment vacancy ended the year near 2 percent. While recognizable Louisville companies like Humana and YUM! Brands have consolidated space, small-business leasing activity has more than compensated for enterprise-level relinquishment. State-level tax changes may encourage this going forward. Kentucky lowered its income tax rate from 4.0 percent to 3.5 percent earlier this year, the first phase in a plan to eliminate the tax. This will likely stimulate demand for smaller, Class B/C spaces among pass-through businesses. Overall, net absorption is expected to exceed last year’s level modestly, setting up vacancy for a slightly larger reduction by year’s end.