At the core of Memphis, which serves as a major global crossroads for transportation and logistics, is a healthy and growing commercial real estate market. Last year, three significant events occurred in Memphis that can only have a continued dramatic effect on commercial and industrial real estate.

Memphis International Airport, the busiest cargo airport in the world for the eighth consecutive year, opened an 11,000-square-foot North-South runway in September of 2000. In addition, plans were finalized for the SuperTerminal, a 1,000-acre container super sort facility for Class I railways. Finally, $18.4 million was appropriated for pre-construction costs of Interstate 69, the NAFTA Highway, which by federal legislation must pass through Shelby County.

These events will ultimately increase both international and national trade, add to the already booming logistics business in Memphis, bringing more companies and jobs, and enhancing economic development in the three-state region. Already, Memphis, for the fourth consecutive year, has exceeded $1 billion in economic investment, representing 25 percent of all funds for the entire state of Tennessee. This is translated into 9.3 million square feet of space and more than 12,300 net new jobs. According to Expansion Magazine, Memphis ranks as eighth among America's Top 40 Real Estate Markets for the second consecutive year.

Industrial

The industrial market tallied record numbers in the year 2000. In a total market of more than 90 million square feet, mid-year net absorption surpassed total absorption figures for 1999. When the numbers were totaled, Memphis absorbed more than 6.7 million square feet. Newly constructed buildings totaled more than 6.6 million square feet for 2000. The majority of these additions to the market were found in the very active Southeast market. More than 70 percent of the absorption occurred in bulk Class A space, totaling more than 4,744,618 square feet. Two significant transactions were United Stationers, 654,000 square feet, and Williams Sonoma, 1.2 million square feet. Rental rates for Class A bulk space range between $2.85 and $3 per square foot plus expenses.

"The Memphis industrial market continues to grow at an astonishing rate," notes Greg deWitt of Colliers Wilkinson & Snowden in Memphis. Currently the city has five speculative buildings ranging from 385,000 square feet to 708,000 square feet under construction or announced, and two of them are expandable up to 1 million square feet. "This is taking place during a slow growth period in the economy," deWitt adds. "As more companies look to cut costs, logistic strategies will come to the forefront, and Memphis will evolve from America's Distribution Center into a Global Logistics Hub."

Panattoni Development Company, Southeast LLC currently has five industrial projects underway in Southeast Shelby County, according to Al Andrews Jr., Panattoni's Memphis area partner. The company recently completed a 650,000-square-foot speculative building leased to Technicolor Video Cassettes in SouthPoint Distribution Park. Panattoni is also developing Memphis Oaks Distribution Center on 127 acres. The first phase, which is under construction, is 652,000 square feet and is expandable to 900,000 square feet.

Local developer Belz Enterprises has recently developed MelTech, a 230-acre industrial park. The first 200,000-square-foot building is already two-thirds leased to Terumo Medical, headquartered in Elkton, Maryland, and Communication Test Design, Inc. out of West Chester, Pennsylvania. A second 190,000-square-foot building has been started.

Other developers actively building industrial properties in Memphis include Denver-based ProLogis Trust, Champion Partners of Addison, Texas, and Atlanta-based IDI.

"As we expected, bulk rental rates have risen in this incredible tide of leasing and have gone up $.09 to $.13 per square foot on average, over the last year," observes Wyatt Aiken, senior vice president of Commercial Tennessee, Inc. "We predict that 2001 will be a good year, but do not expect a repeat of 2000. Rates are expected to hold. DeSoto County [Mississippi] should have an even stronger year due to some aggressive new incentives instituted by the State of Mississippi."

Office

The Memphis office market was also a winner in 2000, albeit a conservative one. In essence, the office market is healthy and it seems it will remain that way in 2001. Absorption for 2000 totaled 519,219 square feet in the speculative market and more than 500,000 square feet of build-to-suit was occupied by FedEx at its new world headquarters.

The Southeast submarket along the Winchester Road/Nonconnah Parkway corridor has been extremely successful for developers over the past few years. Raleigh, North Carolina-based Highwoods Properties has begun construction on Shadow Creek II, the second phase of Shadow Creek at Southwind. Once completed, the Southwind Office Center will total approximately 800,000 square feet. Since 1996, local developer Clarke & Clarke has developed over 580,000 square feet. The company has contracted to purchase the 113-acre Fieldstone Development for future office development located on Hacks Cross Road west of Southwind. Memphis-based Kemmons Wilson Companies will soon begin construction on the first 75,000-square-foot building of the 400,000-square-foot Tournament Trails Office Park on Winchester adjacent to Southwind. Belz Enterprises is currently constructing a 75,000-square-foot building adjacent to Wyndike Country Club. There will also be a significant increase in development along Winchester Road between the FedEx World Headquarters at Southwind and the FedEx Technology Center in Collierville.

Speculative development has occurred along the Nonconnah Parkway for the technology user niche market. Unique characteristics that make these buildings especially attractive to technology companies increased construction costs when compared to standard office buildings. In the past, building owners have paid the construction cost premium because technology users are willing to pay a higher rate for the technology friendly design. However, with the slump in the technology market, landlords have to make rates more competitive to attract traditional office users. Overall, developers have been conservative in their speculative building practices, and traditional lending institutions have made it more difficult for developers to overbuild. Square footage for the Memphis office market increased by 996,750 square feet in 2000.

In the heart of East Memphis, local developer Loeb Properties is underway with Sanderlin Place, a 5-acre office and retail development. Commercial Bank and Trust purchased a 1-acre lot and is currently constructing its headquarters there.

Loeb Properties has begun construction on a 19,600-square-foot retail center on one lot with occupancy planned for July. In addition to the bank and retail center, the company has an additional two acres available for Class A office development. Loeb Properties is also developing Wolf River Professional Center, a $26 million office park in Germantown. The development will total 165,000 square feet in 17 lots, 13 of which have been sold or are under contract.

There was a softening in the Class A office market for East and Southeast Shelby County. This was due partially to the construction of six Class A office buildings adding 463,250 square feet to the market. In the Poplar Corridor there was a negative 45,232 square feet of absorption. At this time, 230,800 square feet of speculative Class A office space is planned to be constructed by year-end 2001 and early 2002 in the East and Southeast submarkets.

Asking rental rates for Class A, first and second generation space in the Memphis area office market ranges from $19 to $25 per square foot. A hot topic for landlords and tenants this year is going to be property taxes. A reassessment is expected this year in addition to tax rate increases at the county level.

Retail

Memphis can also tout a healthy retail market through the fourth quarter with net absorption year-to-date of 1,122,647 square feet. Growth in the retail market has been concentrated almost entirely in terms of big box expansion. Office Depot, Homeplace and Petco have continued adding locations, while the superstores such as Wal-Mart, Sam's and Costco have also been aggressive in carving out new territory. The most active submarkets were Southaven, Mississippi, Southeast Memphis and East Memphis.

Key players include major retailers in the grocery, home improvement, entertainment and drug store chains. Seessel's by Albertson's has begun an aggressive expansion that has heightened the competition with market dominator Kroger. Lowe's hardware is certain to have an impact on the home improvements market as they pursue four new locations in the Memphis - Northern Mississippi region.

One of the most significant changes in Memphis retail has been the construction during the past two years of at least 15 new Walgreens locations. Many have captured strategic corners in Memphis neighborhoods that have extended its extraordinary market dominance to new levels. Where grocery stores traditionally served as the primary stimulus for neighborhood retail development, Walgreens has clearly become the catalyst for small center growth across the city and county, paying land prices ranging from $15 to $24 per square foot for key sites.

Walgreen's is nearing completion of a store on one lot in St. Elmo Place, a 12,000-square-foot strip center in Bartlett. Loeb Properties is developing St. Elmo Place and recently began construction on a CITGO gas/convenience store on a second lot. Loeb Properties is also developing Collierville Marketplace, a 107,000-square-foot project with The Home Depot and Office Depot as anchors. Other tenants include FedEx, PakMail and Lenny's Sub Shop.

Downtown

Memphis' central business district has been undergoing a tremendous redevelopment in the last five years as evidenced by more than 70 projects totaling more than $2 billion. Through the market-leading efforts of Belz Enterprises, the new Peabody Place Entertainment and Retail Center is certain to be a key location for dining, shopping and entertainment in the downtown area. Tenants will include Tower Records, 3-D IMAX, Gap, Jillian's and McGuinness Pub.

"With the imminent completion of Peabody Place and the upcoming Memphis Redbirds Baseball season, downtown will be the place to be this spring," says deWitt. "If you want to see a 3-D IMAX movie, you'll go downtown. Or if you want to see baseball in the nicest triple A baseball stadium in the country, you'll go downtown. With all that is going on, both out East and downtown, Memphis is continuing to be a great little river town."

"Downtown is definitely back, and our tag line ¹come downtown and play' is something that all Memphians will want to experience," said Andrew Groveman, senior vice president of Belz Enterprises.

Long a leader in real estate development, Belz owns and operates more that 25 million square feet of industrial, warehouse, distribution, shopping and office space across the United States. Most recently Belz announced plans for Champion Hills Office Park at Wyndyke. Located in the thriving Winchester corridor between Hacks Cross and Bailey Station Roads, the plan includes five new office buildings totaling 240,000 square feet. Phase I of the project is scheduled to be completed by this fall.

"The southeast part of Shelby County is one of the fastest growing areas of Memphis," said Morris Thomas, vice president and director of brokerage and leasing for Belz Enterprises. "That, coupled with the strong demand for Class A office space, solidifies our belief that this is a ¹can't miss' opportunity."

Lawrence K. Jensen is president of Commercial Tennessee, Inc. in Memphis, Tennessee.


©2001 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.