FEATURE ARTICLE, DECEMBER 2004

2005 Outlook

MEMPHIS, TENNESSEE

Office

Overall, the Memphis office market has remained somewhat stable, for there has been little change in vacancy rates and lease rates during the past year. Growth is expected around both the core and suburban medical centers as well as along Interstate 40 in the Northeast submarket. Demand is strong for medical users leaving the immediate congestion of hospital campuses, and the availability of land with workforce population growth along I-40 has caused a second wave of development (although small) at this time.

Kelly Truitt Executive Vice President, Corporate Services/ Brokerage Services CBRE Memphis

The Memphis office market should show signs of improvement over the next year as office tenants begin to see some of their choices dry up in Class A properties. However, it is expected that demand will not be strong enough to encourage significant speculative development. More suburban medical office growth is anticipated, including the one project currently under construction in this market — the 64,486-square-foot Briarcrest Professional Building. Another development in the planning phase in Germantown is a pair of two-story, 50,000-square-foot medical office buildings developed by Weston Companies. Additionally, the Memphis Biotech Foundation should begin work on the first phase (165,000 square feet) of its Baptist/UT Research Park in the Downtown and Midtown submarkets — the core of the city. The Park will include an incubation program to develop new business in biotechnology and foster creation of new jobs. The enormous redevelopment of this area will inevitably attract more medical office users to Memphis.

— Kelly Truitt, CB Richard Ellis

Industrial

James Mercer Executive Vice President, Industrial Asset Services CBRE Memphis

It is expected that the Desoto County, Mississippi, and Northeast submarkets are the areas most poised for new growth in 2005. National developers continue to build speculative space in Desoto County, causing other investors and tenants to see the potential that lies in this submarket. The development of the remaining 475 acres of Olive Branch Distribution Center (Phase II), owned by the Dunavant family, in Desoto County will play a significant role in the Mid-South region in 2005. Furthermore, the addition of more speculative warehouse facilities developed by IDI, Panattoni, Hillwood and H & M Construction have put Mississippi “on the map” for future industrial growth.

Looking ahead from a global perspective, a growing national economy will help fuel overall industrial activity. There is much pent up demand that is waiting for signs of sustainable growth. From a local perspective, Memphis city and county budget deficits need to be controlled to keep pressure off modifying the current payment-in-lieu-of-tax (PILOT) incentive that has helped double the size of the industrial market over the last 10 years.

Most of the new available (or soon to be available) warehouse spaces are in speculative facilities built by national developers. There are currently six facilities under construction that range in size from 259,000 to 789,000 square feet. This is a total of 3.5 million square feet of new inventory being delivered to the market over the next year.

— James Mercer, CB Richard Ellis

Retail

Scott Barton Vice President, Retail Services CBRE Memphis

Big box retailers, neighborhood centers, and lifestyle or open-air centers will make up the majority of new product in 2005. However, it is expected that development overall will begin to slow down over the next couple of years. In order for Memphis to experience a completely healthy retail market, more medium to large tenants will need to move into the area.

Currently, three new lifestyle centers are underway in Memphis. This retail category is taking ground and seems to be more appealing for larger developments. Three of the major projects that will have a definite impact on the Memphis real estate market during the next year include the Avenue at Carriage Crossing in Collierville, which is being developed by Jim Wilson & Associates/ Cousins Properties; DeSoto Pointe in Southaven, which is being developed by Utley/Trezevant Enterprises; and Southaven Towne Center in Southaven, which is being developed by CBL & Associates Properties.

Demand for retail space is growing in several areas within the Memphis market. The Downtown/Midtown submarket will most likely experience an increase in development as residential growth continues. The FedExForum, home to the NBA Memphis Grizzlies, was completed in September 2004, and it is expected that its completion will attract more retailers to the central business district.

— Scott Barton, CB Richard Ellis

Multifamliy

Blake Pera Vice President Multifamily Division CBRE Memphis

The Memphis multifamily market performed well in 2004, with stable occupancy rates, increasing street rents and new construction starts that are down from previous years. Absorption this year has kept pace with construction, with 497 units absorbed versus 512 units completed. Although street rents have increased, concessions at a majority of properties are still common. Fortunately, absorption is expected to outpace the delivery of new units in the market, creating higher occupancy levels and continued revenue growth.

The Cordova/Germantown apartment submarket continues to see the majority of new multifamily construction projects, with the Downtown apartment submarket following closely behind. The Cordova/ Germantown submarket expects a total of 722 units delivered in 2004 and 344 in 2005; Downtown expects 549 deliveries in 2004 and 377 in 2005.

The Bristol on Union in Midtown Memphis offers such amenities as an Internet café, billiards room, massage therapy room and loft units.

Two distinctive projects that have enhanced the Downtown and Midtown apartment submarkets are Uptown Square and The Bristol on Union. Uptown Square in Downtown, a renovated 1930s public housing development on the National Register of Historic Places, has undergone a phenomenal transformation. The Bristol on Union is the first market rate apartment community to be built in Midtown in 30 years, and feeds off of the affluent professional renter.

— Blake Pera, CB Richard Ellis

©2004 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.