SOUTHEAST SNAPSHOT, SEPTEMBER 2010

Memphis Office Market

The Memphis office market has seen positive absorption in three of the last four quarters, with this latest quarter coming to an end with more than 185,000 square feet of absorption. Overall vacancy rates were 12.1 percent for the second quarter of 2010. This healthy trend has led to new construction, sales of major assets and some major leases being signed in the last 6 months. However, rental rates continue to lag, dropping 1.5 percent during the last year. This shows that Memphis, as with most secondary markets, continues to wrestle with the current lingering poor economic cycle.

Highwoods has completed its latest building, Triad III. The project has also achieved LEED-Gold certification and is a sparkling addition to what is known as the center of Memphis’ office market. The interchange of Poplar Avenue and Interstate 240 is the geographic and business center of the city. This section of Poplar Avenue, the most traveled street in Memphis, houses a majority of the office towers and a large portion of the high-end retail in town. Office vacancy rates in this 2-mile section of Memphis continue to hover around 7 to 8 percent, and rates here are the highest in the city.  This area’s pull on tenants from downtown continued this last quarter with one of the largest leases in the city being signed by one of its largest law firms, Glankler Brown PLLC, which leased 33,000 square feet at 6000 Poplar. Acorn Research also signed a large lease for more than 24,000 square feet at 6555 Quince Road, another East Memphis office tower.

The largest transaction for the last two quarters was completed when Highwoods bought The Crescent Center, perhaps the city’s most widely known office building, for $52.6 million. The nine-story building totals  336,000 square feet of trophy space. Along with its new building across the street and the six other buildings it owns within a 2-mile radius, Highwoods is as bullish on this section of Memphis’ office market as anyone.

Perhaps the best news for the city and office property owners is that there was positive absorption in those beautiful Class A office towers on the east side of town as well as in areas of town where B and C class properties abound. Most notably, the Midtown office market continues to see activity. UT Medical Group signed an 80,000-square-foot lease in the former Mid Town Tower building at 1407 Union. Another Midtown tower, 1331 Union, recently cleaned its exterior and added some unique artwork to the exterior that makes the drive down Union in the morning a little more pleasant.

Downtown Memphis is hoping Pinnacle Airlines decides to move forward with its plans to move its entire office operation from around the airport into the One Commerce Square building, one of the office towers that overlooks the Mississippi River. That would shore up downtown’s office market and continue to increase demand for more complementary retail.

The Memphis market continues to see slight positive absorption and a slowly declining rental rate, with an average rate of $16.34 per square foot. As more of the space is taken off the market, hopefully the rents will start to see an increase. For now, though, it continues to be a tenant’s market with concessions and heated competition.

— Greg deWitt, CCIM, is with Grubb & Ellis | Memphis.

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