This will be a peak year for Memphis with regard to apartment construction in this cycle, which began in 1993, according to Steve Rudesill, president - multifamily division, CB Richard Ellis Memphis. The Memphis area will add over 3,600 units to its apartment supply in 2001. "We expect some additional softening in occupancies and continued use of rent concessions until the new units are leased," he says.

Memphis has historically seen steady development of new apartments from several local and regional apartment developers. Recent entries to the market include JPI, Bristol Development Co. and Davis Development Co.

Twelve apartment communities with 2,242 units are currently under construction in the Cordova/Germantown submarket and are scheduled for completion in 2001.

The Downtown apartment submarket has 1,086 units scheduled for completion this year. These new units will add nearly 30 percent to the existing downtown supply; however, downtown' resurgence and continued growth continues to create demand for these new units.

New apartment construction in Memphis continues to target a white-collar resident profile. The targeted renter can afford the higher rent levels associated with new Class A apartments and they are willing to pay for amenities like covered parking and garages.

Rents range from an average of $511 for old construction properties (built prior to 1984) to an average of $802 for new construction properties (built 1993 to present). As of first quarter 2001, the overall weighted average rent per unit is $612. Occupancy for the Memphis market overall is 91 percent, as of first quarter 2001.

The Cordova/Germantown and Downtown submarkets represent Memphi' most dynamic growth areas, says Rudesill. The Cordova/Germantown submarket is anchored by the cities of Germantown and Collierville (the fastest growing city in Tennessee) and the Wolfchase Galleria retail complex in Cordova. Memphi' downtown is enjoying a tremendous renaissance. News such as the $1 billion expansion of St. Jude Children' Hospital and the relocation of the NBA' Vancouver Grizzlies to a new downtown arena is fueling rapid growth in Memphi' central business district.

The Cordova/Germantown and Downtown submarkets will see 75 percent of the Memphis area deliveries. These submarkets represent the only two areas in Memphis where rent levels can justify the development of new Class A apartments.

Although the fact that the Memphis area will add over 3,600 units to its apartment supply in 2001 is significant, this level of construction activity does need to be put into context with apartment deliveries from the most recent 2 years, Rudesill notes.

"Our market research department monitors all apartment development activity for the Memphis area, and we project construction levels going forward," he says. "For 1999 and 2000, the Memphis area actually under-delivered our projections by 1,600 units over that 2-year period. Although those units were still in the development pipeline, the fact that the units were delivered later than we expected has created a bunching of deliveries in 2001. Had units been delivered according to our initial projections, deliveries would have averaged 2,100 units per year since 1999. While that level of construction would have still exceeded annual absorption, a more even delivery of new units from 1999 to 2001 would have been healthier for the market."

The new supply being added this year will exceed absorption. The good news is that permits are way down and planned construction will trail off significantly in 2002.

"While Memphi' historically stable apartment market has avoided the boom/bust cycle experienced in a number of other southeastern markets," says Rudesill, "we do need to take a breather from additional apartment construction."

The positive growth picture for Memphis will overcome the short-term apartment supply imbalance. Shelby County leads the state in private capital investment, job growth continues to be steady and there is a renewed excitement in the community due to the NBA' relocation to Memphis. All of these factors are indicators of Memphi' resilient economy and support a positive outlook for continued growth.

Steve Rudesill is president of the multifamily division at CB Richard Ellis Memphis.


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