SOUTHEAST SNAPSHOT, JUNE 2012
Memphis, Tennessee Industrial Market
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FedEx is usually the first thing that comes to mind when subject of the Memphis industrial market comes up. And for good reason.
Memphis’ largest tenant and corporate citizen has historically generated a ‘FedEx effect’ on the local market. FedEx has made Memphis a center of international business, attracting billions of dollars in investment, in manufacturing and distribution facilities. The Greater Memphis Chamber reports more than 130 foreign-owned firms from 22 countries employing close to 20,000 workers have been drawn to Memphis since the early 1980s. According to one study conducted by the chamber, FedEx generated 10,000 new jobs, occupied more than 12 million square feet of new space and plowed more than $710 million in new investment in the area between 1995 and 2000. Today, FedEx employs approximately 32,000 people in the Memphis area and occupies approximately 30.5 million square feet of combined industrial and office space.
The total metro Memphis industrial inventory is approximately 220 million square feet and the total metro Memphis office inventory is approximately 20 million square feet. The Memphis commercial real estate market comprises three primary counties in three states: Shelby County, Tennessee; Desoto County, Mississippi; and Crittenden County, Arkansas.
Memphis is not just home to FedEx. We are now known as an Aerotropolis, which is defined as an economic hub that extends out from a large airport into a surrounding area that consists mostly of distribution centers, office buildings, and light manufacturing firms all linked to the airport via the four R’s: runway, rail, river and roads. Runway: Memphis is home to North America’s busiest cargo airport. Rail: We are served by five class I railroad systems. River: Memphis has the second largest inland port on the Mississippi River. Road: Memphis is home to more than 200 common carriers with four major interstate systems passing through Memphis (I-40, I-55, I-69, and I-22).
CURRENT CONDITIONS
The vacancy rate for industrial space ended the first quarter at approximately 13.4 percent and has steadily declined since its peak in late 2009 when it was closer to 14.6 percent. Net absorption for all of 2011 exceeded 1.1 million square feet. However, the Memphis industrial market got off to a slow start this year, with some negative 980,140 square feet of absorption, according to CoStar. Asking rental rates range from $2.25 to $3.10 per square foot on a net basis.
How does this translate to the market? Property owners’ prevailing attitude is this: “If you have a tenant, keep him. If you have a proposal from a prospective tenant, take it.”
In other words while trending positive, the Memphis industrial market is still unsettled. Rental concessions and discounted rates are favored.
ACTIVITY & OUTLOOK
IDI is constructing a 615,000-square-foot, build-to-suit building for Milwaukee Electric Tool in Crossroads Distribution Center in Olive Branch, Mississippi. The building is expected to be completed in third or fourth quarter 2012.
IDI is also building two speculative buildings at Crossroads. Building E is a 522,972-square-foot facility with 32-foot clear height, 54x50 column spacing, ESFR sprinkler system, and expansion capabilities up to 830,772 square feet. Building B is a 267,843-square-foot facility with 32-foot clear height, 54x50 column spacing, ESFR sprinkler system, and rear loading docks.
Activity is increasing, mostly in DeSoto County, where we are tracking 12 active prospects each of which is seeking between 300,000 and 1 million square feet.
Despite the first quarter setback in absorption, we expect that absorption for the remainder of the year will be positive and, in fact, better than in 2011. Rent concessions should slow down as the economy continues its incremental improvement. That said, most of the brokers in our community would agree that supply will likely exceed demand for Memphis industrial space until 2013 or even 2014 when the market could return to equilibrium but only if the economic recovery is sustained.
— Charles Sevier, CCIM, SIOR, is principal with Crump Commercial/CORFAC International in Memphis.
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