Employer Growth Translates to Plummeting Vacancies and Higher Rents in Louisville, Ky.
- May 03, 2012
An expansion in payrolls is likely to add an exclamation point to an already strengthening multifamily sector in Louisville, as employers such as UPS, General Electric and Ford plan to boost hiring in the metro throughout 2012.
According to Marcus & Millichap, employment in Louisville is expected to increase by 13,000, or 2.1 percent, before the end of the year—a slight decrease from the 15,000 positions added last year, but still very strong. General Electric is set to add 500 jobs at its national headquarters in Appliance Park, while Ford will likely create 3,100 jobs at its Louisville plant after settling a recent union dispute that might have jeopardized such a development.
Additionally, white-collar job growth is expected to be double local growth overall—at 4.3 percent. As such, vacancy for Class A apartments and top-tier assets will likely fall in the mid-3 percent range. Marcus & Millichap reports that redevelopment of the Whiskey Row district is expected to encourage investment activity in the downtown area, further boosting these assets. Overall vacancy is expected to decline 41 basis points to 4.1 percent.
Asking rents are expected to increase by 2.9 percent this year to $679 per month, while effective rents should rise by 3.8 percent—to $658 per month. Class B apartments will likely be upgraded to achieve higher rents, making further increases in overall rents possible.
However, developers are expected build 300 new apartment units this year, marking the first year of significant construction in the metro since the height of the recession in 2009. This construction will amount to a 0.7 percent increase in rental inventory and could have a mild to moderate effect on vacancy rates in 2013.
Even though the climate for multifamily in Louisville is good compared to previous years, the metro still falls short of the nation in terms of rent growth. Marcus & Millichap ranked the MSA in the bottom half of its 2012 National Apartment Index (NAI) at 28—down six places from the previous year.
In terms of investment, Marcus & Millichap notes that properties close to large employers in the southern submarkets, as well as those near the University of Louisville, will be a major focus of local buyers—while large private buyers will likely wait for more Class A assets to hit the market.