Other significant employment announcements include UPS’ $1 billion World-port facility expansion in Louisville, which is expected to create more than 5,000 jobs by the time it opens in 2010. Already the top employer in Louisville, UPS’ and other employment expansions, will help mitigate manufacturing losses, stabilize the local economy, and help both cities’ populations.
Louisville is forecasting measured growth and Lexington is due to exceed the national average by almost one-half a percentage point. Overall, both Lexington and Louisville are projected to have continued job growth in 2008, albeit at a slower pace than the past two years, with 2009 forecasts picking up once again with growth in the 1.2 percent to 1.3 percent growth range. Additionally in 2008, unemployment is forecast to remain tight in both markets with Louisville ranging from 5.1 percent to 5.5 percent and Lexington from 4.7 percent to 4.9 percent.
SOLID STRIDES Positive job and population growth, a for-sale housing downturn, and tighter mortgage underwriting standards kept Louisville and Lexington running on strong fundamentals over the past year. Louisville landlords took advantage of these strong fundamentals by raising market rents 3.6 percent in 2007, according to Reis, some of the best results in the market in recent memory.
Concessions also continue to slowly burn off with average concessions now hovering just above half a month. Reis is forecasting a slightly lower, but steady annual rent growth factor of 2.5 percent to 3 percent from 2008 through 2011. Lexington has also seen solid growth over the past two years, with 2007 showing 2.8 percent market rent growth and an effective rent increase of 3.8 percent, which discloses the continued burn off of concessions in the market. Reis projects more of the same over the next four years with rents projected to grow between 2.5 percent and 2.9 percent.
The numbers prove it. Average rents in Louisville are $472 per month for a studio, $561 for a one-bedroom unit, $641 for a two-bedroom unit, and $878 for a three-bedroom apartment. Overall, Class A rents average $781 per month, while Class B rents average about $548 per month. Across town in Lexington, average monthly rents run at $460 for a studio, $549 for a one-bedroom unit, $672 for a two-bedroom unit, and $811 for a three-bedroom unit. Overall, Class A rents in Lexington average $771 per month; Class B rents are at $534 per month.
Vacancy metrics in both markets have shown recent strength due in part to job and population growth, and modest new supply. Both markets were holding a vacancy factor near 7.5 percent at the end of 2007, down more than a half-point from 2006. Vacancies are projected to remain stable over the next four years with a slight trend upward due to new supply hitting each market.
STEADY SUPPLY The new supply of apartments has remained muted in both cities as the cost of construction and availability of viable, properly zoned sites remain difficult.
Lexington saw no new properties built in 2007 and, on average, fewer than 100 new units have been delivered annually over the past five years. Reis projects approximately 400 new units to be added to the market through 2012. In Louisville, the supply is similarly low, with 442 units delivered in 2007 and an average of 435 units built annually over the past 5 years. Reis projects the trend will continue over the next five years with fewer than 500 units delivered annually.
Recent deliveries in Louisville included Paddock at East Point’s Phase I, a 298-unit apartment project completed in late 2006, and the 202-unit Phase II development completed in the fourth quarter of last year. Across town, the 160-unit Renaissance Valley Farms apartments just completed; it’s located on Valley Station Road off of Dixie Highway and near Norton Southwest Hospital in the Southwest Jefferson County submarket. Overall, however, condo construction continues to be favored by Louisville developers—several ongoing projects are smaller properties of 150 units or less.
Lexington’s most recent new apartment property is the 221-unit Villages at Hamburg Farms, completed in the fourth quarter of 2006. Located off of I-75 and Man O’ War Boulevard, it’s in the East Fayette County submarket and near new shops and restaurants, including the Hamburg Pavilion shopping center. As in Louisville, Lexington developers continue to favor condos with several smaller complexes recently completed or in planning stages. These new condos range from mid-level units priced in the mid-$100,000s to luxury condos priced from $300,000 to $750,000.