By Robert Hadley
If it’s true that there’s a light at the end of every tunnel, then real estate and construction are bringing the Lexington-Fayette County economy to the light.
Buoyed by several successive quarters of falling unemployment, as well as retail and residential construction booms, the overall construction market has climbed to a new normal – which is, as it turns out, close to the old one.
Case in point is the rollercoaster ride Fayette County’s unemployment rate has traveled over the past decade. From a high of 9.3 percent in June and July of 2009, the 2016 figures have fallen back to 4.5 percent or less for 2016, close to the low of 3.7 percent in October 2006.
The impact of the improvement has been felt among developers, according to David O’Neill, Fayette County’s property valuation administrator.
“Lexington was fortunate in ways many other cities were not,” O’Neill explained. “Our job market gave us a little bit of hedge against the recession.”
Because Lexington’s economy relies more heavily on government, education and healthcare than on manufacturing to drive employment, it is somewhat insulated from recessionary changes. And that makes it an attractive target for investors.
During the past decade, roughly 5,000 units of multifamily housing have joined the landscape in the Lexington market, mostly built by out-of-state investors, O’Neill said. Combine that with a number of new retail developments, and you have a picture of a healthy real estate sector.
“Over the last 10 years, a lot of things have changed,” he explained “Our population has grown 10 percent, and enrollment in the University of Kentucky has gone up significantly. So I think we’ve reached a critical mass of demand for housing again.”
No roundup of Lexington commercial property would be complete without mention of the downtown CentrePoint project, a $200 million-plus city-block-sized multiuse development in the very center of downtown whose up-and-down saga has mirrored the economy in recent years.
Developer Dudley Webb told The Lane Report in August that the delays in the project first announced in 2008 were caused by the slow overall recovery from the 2009 Great Recession as well as the city’s rejection of a request to sell bond to pay for building the complex’s underground parking garage.
In July, he told the Lexington Herald-Leader the revised timetable includes having the parking garage and most the buildings ready by the spring of 2017 and 2018, respectively.
Although CentrePoint may have drawn the lion’s share of media coverage, O’Neill said other properties are worthy of mention.
First is the Summit at Fritz Farm, which he described as the largest mixed-use development in Lexington’s history. According to Birmingham, Ala.-based developer Bayer Properties, the $156 million Summit at Fritz Farms will blend local and national retailers in an “experiential” 300,000-s.f. retail space with a 120-room hotel and 306 luxury apartments.
“I think the (planned) retail shopping is a little bit more upscale than we have currently,” O’Neil said, “so it will be a segment of the retail market that we don’t currently have.”
Rebounding economy drives housing market
Although the number of permits issued for single-family homes statewide is nowhere near levels seen during the 2005 bubble, builders and economists say it is nonetheless making a comeback. The proof can be seen by looking at county data, rather than statewide figures. In Fayette County, 687 single-family home permits were issued in 2014, up from 513 in 2011.
A combination of falling unemployment and growing population as well as an overall economic rebound seem to be fueling the housing market recovery, according to builders and economists.
“I wouldn’t want to make a causal argument that real estate causes growth,” said Christopher Bollinger, a Gatton professor of economics at the University of Kentucky. “But you’re not going to have people buying houses and (properties) when the economy is not doing well or when there’s a lot of uncertainty in the economy.”
The numbers tell a compelling story. In terms of unemployment, Kentucky’s three major metropolitan areas each falls below the current statewide average of 5.5 percent. Louisville and Lexington report 4.8 and 3.9 percent, respectively, while Bowling Green checks in at 4.3 percent.
Fayette County is not seeing the largest growth in the state in new construction for single-family homes, however, in part because of unique zoning and planning laws; they are part of a comprehensive plan designed to protect Fayette County’s signature horse farms and rural land from urban sprawl, said Todd Johnson, executive vice president of the Home Builders Association of Lexington.
These policies affect the land supply-and-demand market in Fayette County.
“A builder in Madison County told me he had lots for $20,000,” Johnson said. “Here, the same lot would cost $45,000.”
The higher lot price may be affecting first-time homebuyers, who are, in many cases, choosing to rent for longer periods before buying a home, he said. This trend seems to have spurred Fayette County’s growth in apartment buildings, Johnson said. Permits for multifamily homes with five or more units jumped from 187 in 2013 to 506 in 2014.
Population growth likely has played a role in boosting demand for new homes in some communities. Kentucky’s overall population increased nearly 12,000 between 2014 and 2015, according to the U.S. Census, rising 2 percent overall since 2015.
A breakdown of growth by counties explains the higher demand for homes.
“When you look at Fayette County, its annual growth rate in 2006 and 2007 was 1.4, 1.5, 1.6 percent,” Bollinger said. “But since the recovery in 2012-2013, it’s still up over 1 percent.”