Article: Coleman Group's president offers commercial real estate snapshot

Coleman Group's president offers commercial real estate snapshot

• Date:April 30, 2009
• Source:Business Lexington - www.bizlex.com
• Author:Tom Martin

Lexington, KY — Bob Cole is president and principal broker of the Coleman Group, a Lexington-based firm specializing in commercial real estate. Each year Cole's organization provides a statistical snapshot of the performance of Lexington's commercial real estate market. The report is produced in three sections focusing on the Central Business District, Suburban Office Space and Industrial Space. We asked Cole to interpret the numbers.

What is your general assessment of the market right now?

One of the things that we're seeing is just basically a slowdown in all facets of commercial real estate. … You can look at the studies that are put out on a national level to know that there's no commercial market that's not impacted by the slowdown in the business climate that we're currently in.

What do the numbers tell you?

...when you start seeing vacancy numbers in the single digits – eight, nine, 10 percent – this indicates that there's not a lot of space available and there's opportunity for development. When those numbers increase, … it helps the community know, and especially developers know, when there is a need that's not being met. What you'll notice from the graphs in our report is that over the last six years, the economy was doing well and money was flowing, businesses were in a growth mode, the vacancy level decreased. In the last two years, you'll notice that's not the case. Now we've headed in the other direction, almost an inverse to the stock market. We're now starting to see vacancy levels starting to creep back up because of all the obvious reasons: the slowdown in business, the slowdown in the economy, things of that nature.

Since the economic conditions that we're now experiencing overcame us so quickly, would it be an oversimplification to say that the Lexington market is overbuilt?

Absolutely, in certain sectors. Office space, industrial space, warehouse distribution space, retail space, apartments, hotel accommodations, etc. – each of those sectors reacts differently, depending on the cycle or the business cycle you are in. A positive, for example, is the apartments. Apartments are very strong. There is a lot of apartment development around town. That makes sense. The mortgage lending subprime crisis has forced people out of their homes. They have to live someplace. They are moving into apartments because they can't afford their homes. Therefore, you're seeing a lot of growth in that sector, and it's thought of very favorably among the financial markets as well. There's a lot of money out there that's being put into apartment growth and development. Now let's take the flip side of that; let's go down to, for example, the hotel industry that is hampered greatly, because people aren't traveling. They're staying at home, they're doing the backyard barbeque – they're not off galavanting around on vacations and such. Everybody is watching their nickels. The hotel industry is being hurt, especially the full-service hotel industry. Then you get into the property types like office, retail (and) industrial. The office sector has been overbuilt over the last two years. The Central Business District is what you would expect it to be; it's our downtown area. This area has held it's own over the last two years; you've seen a 10- to 12-percent vacancy of space. And that makes sense. There hasn't been any speculative building downtown. What development we've seen has been in the residential and/or retail component area.

What is your assessment of downtown Lexington, versus the suburbs?

I have investments in downtown, I own properties in downtown. And I see nothing but good times ahead for our downtown community, and I think a lot of positive things are happening there. When we move out into the suburbs is where we'll see the biggest change. We currently have in our suburban market study a 17.41 percent availability of space. That is an increase from the 2007 study of 12.85 percent. That's a significant increase. It's not going to stop there. All the national publications that are produced by PricewaterhouseCoopers and some of the larger firms that produce national data indicate that we're probably looking at a 19- to 21-percent vacancy level this time next year, and I agree with that. I confirm that. So that's a significant increase in space availability. What you saw over the last two or three years in our study is almost – we have a joke within our group at Coleman, that people that got our study saw the low single digits in suburbia and everybody that could hold a hammer went out and built office space. Well, we've got a supply for sometime in the future. …What has really been hit hard – and this is your core business and this hurts to even talk about – but it's your Class B and C properties. These are all the small office condos and the buildings that are 10, 15, 20 years old in subdivisions throughout Lexington. ...We're seeing 18- to 22-percent vacancy in those specific areas. ...Clearly there is an oversupply of office space; businesses are hurting. Everyone is contracting, pulling back, and when we come out of this is anyone's guess.

What do you think is needed that is not being addressed yet?

I have to be careful how I answer that question. I'll go on record as saying that my wife is the Commissioner of General Services to the Mayor of Lexington and so what I say today is from Bob Cole - not Kimra Cole's husband, but from Bob Cole and his opinions. Clearly we've neglected some of our structures downtown from the standpoint of the Government Center, some of the parking garages, etc. and it's now time for us to stand up and correct and fix those items.

Maybe a new government center, that's what's needed. You couple the government taking an aggressive stance to not just look at today but 20, 30, 40 years down the road to where we can grow this community downtown. There are outside developers looking at coming into our central city and expanding the way Bill Lear has done around the University of Kentucky. There continues to be that merger of UK and downtown. I mentioned last year that there were three what I call drivers in this community and I still stand by this that really are keeping us separated and is keeping us afloat and is helping this economy, weather the struggles that we're going through, that's the expansion of the UK Medical Center. It is the expansion of our relocation or possible expansion of Central Baptist out to I75 and the Hamburg development and it's the Center Point development. I think that all these things bring development, promotion, it puts people to work and instead of like a lot of communities that are losing jobs, we're keeping people employed. And that's the whole key to leasing space, to opening restaurants, to filling up shopping centers, is you have to have a job and so that's the key thing, we have to keep our mind and keep our foot on the pedal. We need to keep moving forward.