Brokerage Outlook: Kentucky

• Kentucky Retail

• Louisville Industrial

• Louisville Office

Kentucky Retail Schwartz Submitted by Robert Schwartz, senior vice president/partner of retail services with the Louisville, Kentucky, office of CB Richard Ellis|Louisville. Posted 2-15-06. What area is your expertise? • retail sales/leasing/property management/investment sales in Louisville, Kentucky, and throughout the state What trends do you see presently in retail development in your area? • a shift towards townscape or lifestyle What type of retail product is doing well in your area? • big boxes, lifestyle centers What retailers are new to your area? • P.F. Chang's China Bistro, The Cheesecake Factory, Costco, Bass Pro Shops Who are the active retail developers in your area? click here to see retail construction chart • General Growth Properties, CBL Associates, Heritage Realty, New Plan Excel Realty Trust, Weingarten Realty, Vision Land Development, Faison Development, Hagan Properties Please name one or two significant retail developments in your area. What impact will these projects have on the market? • There is significant retail development under construction in Clarksville, Indiana, on Veterans Parkway, a new interchange with Interstate 65 in southern Indiana. Developers include General Growth, Gary McCartin, Anchor Associates and Vision Land Development. Tenants include Target, Bass Pro Shops, Best Buy, Lowe;s Home Improvement Warehouse, Bed Bath & Beyond and David;s Bridal. What area do you expect to be the next big retail development market? Why? • Along the Shelbyville Road corridor near Interstate 265 and the Bardstown Road corridor near Interstate 265 due to residential growth in these areas. Please describe the retail leasing activity in your area. click here to see retail lease rate chart • steady activity What major leases have been closed recently? • Bass Pro Shops (300,000 square feet) in Clarksville, Indiana • Costco (200,000 square feet) on Highway 22 in Louisville Please give a measure of retail vacancy. • below 10 percent in major shopping areas of Louisville What types of retailers should look into your market in the coming year? What type of retail is needed? • New grocery competition is needed. Would you like to make any additional observations about the retail market in your area? • Louisville is a second-tier market with steady growth. Retailers' sales in the Louisville market either meet or are just below their national average sales.

Louisville Industrial Grove Submitted by Kevin Grove, senior vice president/partner of industrial services with the Louisville, Kentucky, office of CB Richard Ellis|Louisville. Posted 2/20/06. click here to see industrial market statistics graph What area is your expertise? • industrial services for the Louisville metro market What trends do you see presently in industrial development in your area? • There is a significant rebound in absorption of institutional distribution space. What type of industrial product is doing well in your area? • All product categories are doing well. Big box distribution space is experiencing the most momentum at this time. Completions in 2006 could exceed 3 million square feet. Who are the active industrial developers in your area? • ProLogis, Louisville-based Main Street Realty and Lauth Development Please name one or two significant industrial developments in your area. What impact will these projects have on the market? • Main Street Realty is completing an 832,000-square-foot spec building in the Louisville Metro Commerce Center. This is the second building in this development, which is adjacent to UPS Supply Chain Solutions on Outer Loop. The first building in this project spans 517,000 square feet and was acquired by UPS in early 2005. Where is the majority of development taking place? Why is this area doing well? click here to see industrial construction chart • Major new development is primarily taking place near the airport and along Interstate 65 where there is easy access to I-65 and the most direct access to the UPS Worldport facility. What area do you expect to be the next big industrial development market? Why? • The Southern Indiana market, right across the Ohio River from the Louisville central business district, is experiencing significant market activity with recent construction of several buildings in the 50,000- to 100,000-square-foot range, as well as a 600,000-square-foot, 50 percent pre-leased building under construction and a 600,000-square-foot build-to-suit prospect in that market. Please describe the industrial leasing activity in your area. click here to see absorption chart click here to see lease rate chart click here to see availability chart • We are experiencing very strong leasing activity and significant interest from a wide range of users. Vacancy is declining, and rates are increasing. This trend should continue through 2006. Please describe the industrial sales activity in your area. • Sale prices for user buildings continue to increase, as costs for new construction continue to rise. Investment offerings in the market during the last several years have been few. Please give a measure of industrial vacancy rates. Please give a measure of available sublease space. • The vacancy rate for bulk industrial buildings (100,000 square feet and over in total building size) decreased each quarter in 2005. The vacancy rate for each quarter in 2005 was: 11.4 percent in first quarter 2005; 9.4 percent in second quarter 2005; 7.6 percent in third quarter 2005; and 7 percent in fourth quarter 2005. What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in 2006? • As of yet, we have not seen any significant market changes due to rising interest rates. Rates will continue to have minimal impact through 2006. What industries do you expect to expand in 2006 to absorb a great deal of industrial space? What areas will be affected? • Healthcare/medical and electronic repair industries will continue to evaluate Louisville, as companies look at markets for consolidation and/or cost savings. UPS is playing a significant role in attracting those users to Louisville. Would you like to make any additional observations about the industrial market in your area? • Louisville could experience a shortage of space if market velocity continues without additional new construction beyond what is already planned.

Louisville Office Hardy Submitted by David Hardy, CCIM, managing director/senior vice president with the Louisville, Kentucky, office of CB Richard Ellis|Louisville. Posted 2-14-06. What area is your expertise? • Louisville, Kentucky What trends do you see presently in office development in your area? • We are seeing speculative construction again in the suburban Class A market and a couple of "drawing board" projects in the central business district (CBD). In recent years, we have seen a trend toward tilt-up concrete buildings in the suburbs due to the lower cost and quicker delivery. Who are the active office developers in your area? • Local groups: Faulkner Real Estate, Fenley Real Estate and ICON Properties. Please name one or two significant office developments in your area. What impact will these projects have on the market? • The Forest Green Office Park, developed by Faulkner Real Estate on North Hurstbourne Parkway, has made a substantial impact on the suburban market with its two seven-story buildings containing 175,000 square feet and large floor plates (25,000 square feet). The third building in the park, Ormsby III, is under construction with no pre-leasing and is scheduled for completion in January 2007. The Olympia Office Park, developed by Fenley Real Estate near the Interstate 71/Interstate 265 interchange in northeastern Louisville has set a high standard for the market with its contemporary design and high-end common area finishes. The neighboring lifestyle center, The Summit, and the area's strong demographics have solidified the demand for additional buildings. Where is the majority of development taking place? Why is this area doing well? • The far east side of Louisville is where office building development is occurring, largely due to the demographics, but also due to the lack of available sites closer to town. Interstate accessibility, area retail services and the proximity to decision makers' housing continue to be the driving factors. What area do you expect to be the next big development market? Why? • The eastern portion of the Interstate 265 corridor from Taylorsville Road to Interstate 71 is where the office land is available. The northeastern quadrant will see higher end buildings due to the demographics and the type of users looking at that area. The other areas along Interstate 265 should see more value-oriented buildings due to the mix of light industrial space in the parks. The Blankenbaker/Interstate 64 interchange is close to Interstate 265 and would be included in this area due to the large rezoning underway. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? • The suburban submarkets continue to improve in the Class A sector. The east end has enjoyed the most demand, as evidenced by the recent completion of a 240,000-square-foot build-to-suit for Anthem/Wellpoint in Eastpoint; the two separate projects currently under construction in Eastpoint for BB&T Insurance and Associated Insurance; and the recent completion of a170,000-square-foot call center for Citicorp in Blankenbaker Station. Pockets of activity are occurring in the southern portion of the market near Fern Valley Road and Interstate 65 and Preston Highway at Interstate 265. The Class B properties across the market continue to struggle comparatively. Certain districts with additional occupational taxes for workers are losing tenants to areas without the additional tax. The dip in Class A rental rates during the past 3 or 4 years lured Class B tenants into the market. Also, the expanding development of office condominiums has pulled the "feeder" tenants out of the Class B rental market in return for ownership opportunities. Please give a measure of office vacancy rates. Please give a measure of available sublease space. click here to see Class A vacancy chart click here to see Class B vacancy chart The vacancy rate in Louisville, Kentucky, as of the end of 2005 are as follows: overall vacancy for all classes and all submarkets: 20.1% CBD Class A vacancy: 14.1% CBD Class B vacancy: 27.6% suburban Class A vacancy: 12.0% suburban Class B vacancy: 22.9% Sublease space has not been a critical factor in the market, with the exception of the 200,000 square feet vacated by Brown & Williamson Tobacco Corporation in the B&W Tower in the CBD after its merger with RJ Reynolds. What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in 2006? • The competitive interest environment has fueled a number of sales of office buildings and office condominiums to owners/users. The impact of the frothy investment property environment with tenant-in-common buyers and out-of-town investors has just recently been felt in Louisville with record sales for high-rise buildings in the CBD as well as the suburban market. If long-term rates start to rise, along with the dramatic rise in short term rates, we will see a slowdown in investment property sales and owner/user transactions. The sentiment within the CBD is that the investment property activity should remain strong for the foreseeable future. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? • Louisville continues to grow at a slow and steady pace. The challenge has been to backfill the high-paying jobs lost to headquarter relocations due to mergers, sellouts, etc. (i.e. Brown & Williamson/RJ Reynolds) with similar level positions instead of hourly call center level jobs. The office market requires growth at both ends of the spectrum to thrive. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in 2006 to absorb a great deal of office space? What areas will be affected? • Humana, a health insurance company headquartered in Louisville, has been expanding rapidly in the past 1 to 2 years. Humana's growth is providing a significant boost to the CBD Class B market as it expands in a nearby facility. We also see a steady stream of call center/customer service center users in the market. Would you like to make any additional observations about the office market in your area? • Louisville has a reputation for steady growth. This market does not typically participate in the frenzy of high demand, but also avoids the hardships of dramatic low levels of demand. The new construction in the area should perform well, but it may be at the expense of other landlords without significant growth in the market.