Kentucky.com

Bob Cole's commercial real estate firm, the Coleman Group, owns, manages or leases more than 1.3 millionsquare feet of office, retail and industrial space in Central Kentucky, ranging from the National City Bank building in downtown Lexington to the Paragon Center on Harrodsburg Road. The Coleman Group also does an annual survey of office and industrial space vacancy rates in Lexington.

Cole sat down last week with staff writer John Stamper to answer Five Questions.

Question 1: With interest rates so low, it seems that buying condo office space has become the popular route for small businesses. How much of the office market is now for sale versus for lease?

Answer: Four or five years ago there really was a boom in what we refer to as the office condo market -- the small-business space. It is growing rapidly. Most of that product has been leased or sold as quick as it has been built. You have a couple of things going on. There are small-business owners purchasing condos as well as investors purchasing condos.

In our market study that we're doing (due out in late January), my guesstimate is that we will be 18 to 20 percent vacant in the overall office market. But in the office condo market, it's going to be a single-digit number. They're selling it before it gets built.

How long will that continue? It's clearly driven by the interest-rate cycle that we have. If you do the financing on a product like that, it is cheaper for a business owner to purchase their own unit than it is to rent space from a developer or property owner.

Question 2: Lexington's suburban office market has seen its vacancy rate rise in recent years as more new suburban space gets built. Is there a glut of suburban office space at this point?

A: Because of the condo developments, there has been a certain amount of supply that has been taken out of the existing suburban office market. Glut may be a little too strong of a word, but there is definitely a two- to three-year supply of office product out there, based on current availability.

Unfortunately, that's being added to every day that a new development is started, whether that be in Beaumont or Wellington or Hamburg. As they start these new projects, that puts a strain on existing product, no question about it.

Question 3: There is a lot of empty warehouse and industrial space in Lexington. Why is that, and what can we do with it?

A: We are losing a lot of manufacturers to Mexico and to other countries because of cheap labor. We're more dependent upon being a service-based economy, so you're going to see more and more availability in the warehouse market. What you're not seeing is warehouses being built.

In the last market study we did a year or so ago, there was 30 to 35 percent vacancy in that area. Although that number has not gone up, the people who were leasing have now bought free-standing properties for their own use. I don't see us filling that space up in the traditional method, so we're going to have to look toward non-traditional methods.

Question 4: What was your first full-time paying job?

A: The answer to that question is twofold. The first two weeks I was a mortgage broker for a finance company. I didn't like calling people to tell them to make their payments. It-wasn't what I was cut out to be. I was glad to get out of it.

After that, I was the administrative manager for the old Kentucky Life Insurance Co., which basically means I was the property manager for what is now the Central Bank building.

Question 5: Do you believe there is a market for office and retail space in downtown Lexington?

A: I am very pro-downtown. In fact, I was downtown two hours ago scouting out locations to move the Coleman Group's headquarters. The availability of office space downtown seems adequate for the type of businesses that lease space downtown.

From a retail standpoint, it is a double-edged sword. What-drives retail is rooftops. We're seeing more apartment and loft-style development going on down-town. There's going to be a certain amount of people that are going to come and live and work in that environment, but long-term I have the opinion that only certain types of retail will be able to survive. Most people aren't going to want to hear that.

The restaurants obviously work. Entertainment works. Limited soft goods work. But to think that we're going to have a strong, vibrant retail mix -- I'm not a believer that that's going to happen anytime soon. The Fayette Malls and Hamburgs are going to win out over the downtown market.

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