Lexington Commercial Office Space for Rent

Q4 2025

Lexington Commercial Real Estate Market Report

Focus: Q4 2025 Market Trends

Executive Summary

The Lexington, Kentucky commercial real estate (CRE) market in late 2025 is marked by accelerating economic development and a resilient, if diverging, property landscape. The Multifamily sector is gaining national attention, identified as a top 10 emerging market for 2025 due to increasing occupancy and robust demand [4]. Industrial fundamentals remain sound despite a national cooling trend, with Lexington benefiting from its strategic location and lower delinquency rates compared to other sectors [1, 4]. Retail is enjoying a resurgence fueled by a lack of new construction and steady consumer spending, driving vacancy rates to multi-decade lows [1]. Office activity is stable but nuanced, with higher-quality assets outperforming as companies adjust to hybrid work models [5].

TenantBase Proprietary Data [7] highlights the distribution of active tenant demand over the last 90 days:

  • Retail/Storefront led market activity with 65.96% of all searches [7].
  • Warehouse was the second most active sector at 27.66% [7].
  • Office accounted for a minimal 6.38% of total search volume [7].

Office Market

Market Overview Lexington's office market is stabilizing, with vacancy rates holding near 11.2% and distinct performance gaps between submarkets and asset classes.

  • Vacancy & Rates: The overall vacancy rate stood at 11.20%, with Class A space commanding rents around $20.05 per SF compared to $14.30 per SF for Class B assets [5]. Submarket performance varies widely, from a tight 1.61% vacancy in Southeast Lexington to 13.50% in East Central Lexington [5].
  • Leasing Trends: The market is seeing a "flight to quality," where newer, amenitized buildings maintain higher occupancy. Total sales volume reached $137.8 million, with an average sale price of $90.83 per SF [5].
  • Tenant Activity: TenantBase data reflects the sector's quiet nature, with minimal inquiry volume recorded in the last quarter [7].

TenantBase Activity [7]

  • Demand Share: Office accounted for 6.38% of total search volume [7].
  • Lease Term Preference: Of the limited inquiries, 66.67% sought Less than one year terms, while 33.33% looked for 2-3 Years [7].
  • Size Requirements: The average lower size requirement for short-term office leases is roughly 1,000 SF [7].

Industrial & Warehouse Market

Market Overview The industrial sector remains a pillar of stability for Lexington, supported by manufacturing growth and logistics demand.

  • Market Drivers: Expansions by major employers like Kindeva Drug Delivery underscore the region's strength in specialized manufacturing [4]. While national industrial vacancy has ticked up to 7.6% due to new supply, Lexington's market remains tighter due to limited speculative construction [3].
  • Performance: Industrial assets continue to have high occupancy rates and low delinquency levels, making them a "safe haven" for investors [1].
  • Leasing Trends: TenantBase data shows steady interest in warehouse space, with a preference for mid-term leases [7].

TenantBase Activity [7]

  • Demand Share: Warehouse accounted for 27.66% of total search volume [7].
  • Lease Term Preference: Demand is varied, with 40.00% of inquiries seeking 2-3 Years, followed by 20.00% each for 1-2 Years, 3-5 Years, and 5+ Years [7].
  • Size Requirements: The average lower size requirement for warehouse space is 2,500 SF across most lease terms, indicating consistent demand for small-to-mid-sized functional units [7].

Retail Market

Market Overview Retail is a bright spot in the Lexington market, characterized by low vacancy and active development in key corridors.

  • Development: New projects like the proposed 127,000 SF Kroger Marketplace on the north side and "The Railyard" mixed-use development highlight the sector's momentum [4].
  • Vacancy & Rates: Nationally, retail vacancy is at a historic low, a trend mirrored locally as lack of new construction drives competition for quality space [1].
  • Tenant Interest: Retail dominated search activity in Q4, accounting for nearly two-thirds of all inquiries [7].

TenantBase Activity [7]

  • Demand Share: Retail/Storefront activity dominated with 65.96% of all search volume [7].
  • Lease Term Preference: Retail tenants show a balanced appetite for lease lengths:
    • 1-2 Years: 40.00% of deals [7].
    • 3-5 Years: 40.00% of deals [7].
    • 2-3 Years: 20.00% of deals [7].
  • Top Locations: Tenant interest is highest in Lexington (9 deals) and Frankfort (2 deals), with scattered activity in Georgetown and Danville [7].

Multifamily Market

Market Overview The multifamily market is robust, with Lexington recognized as a top emerging market for 2025 due to its strong demand fundamentals.

  • Performance: Lexington was named one of the "Top 10 Emerging Multifamily Markets of 2025," largely because it was one of the few metros to see occupancy rates actually increase despite new supply [4].
  • Rent Growth: While some Sun Belt markets are seeing rent declines, Midwest and Southeast markets like Lexington are experiencing rent growth as supply remains better aligned with demand [2].
  • Outlook: The sector is expected to remain a top performer through 2026, supported by job growth and a continuing housing shortage that keeps residents in the rental pool [2].

2026 Outlook

Looking ahead to 2026, the Lexington market is positioned for continued growth and strategic investment.

  • Economic Momentum: With major economic development projects underway and strong rankings in site selection reports, the region is poised to attract further business investment [4].
  • Multifamily Strength: The multifamily sector is expected to see continued rent growth and high occupancy, driven by positive demographic trends and limited single-family inventory [2].
  • Retail Resilience: Limited new retail supply will keep vacancy rates low, maintaining a landlord-favorable environment and supporting rent appreciation [1].

Sources

  1. Brady Martz: Commercial Real Estate Market Forecast Key Trends for Q4 2025
  2. Freddie Mac: 2025 Multifamily Outlook
  3. JLL: U.S. Industrial Market Dynamics Q3 2025
  4. The Kirkland Company: Lexington Market News May 2025
  5. CommercialCafe: Lexington Office Rent Price & Sales Report
  6. JLL: U.S. Industrial Market Dynamics Q3 2025
  7. TenantBase Proprietary Market Data (Lexington - Last 90 Days)

Information in this report is aggregated from various third-party sources and synthesized using artificial intelligence and other research tools. While we believe these sources to be reliable, we cannot guarantee the absolute accuracy or completeness of the data. This report is intended for informational purposes to provide market insight and should be independently verified prior to any use in a real estate transaction or legal commitment.