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Memphis Expects to Bolster Its Stellar Industrial Reputation with Strong 2017

In 2015, the Memphis industrial sector reached a record-breaking 8.4 million square feet net absorption. Achieving absorption in 2015 at a level that was higher than before the recession would have seemingly set 2016 up for a downturn. However, industrial growth, with Memphis at the epicenter of world distribution, allowed the positive trajectory to continue. The Memphis MSA absorbed approximately 6 million square feet in 2016.

Given ideal geographical positioning, Memphis is known as America’s Distribution Center, boasting unparalleled expertise in distribution and logistics. The Memphis International Airport houses the second-busiest cargo airport in the world. Companies recognize that Memphis offers reliable, cost-effective distribution, with the ability to reach 70 percent of the U.S. population within 24 hours. Moreover, Memphis is one of only three cities with five Class I Rail Systems and has the fifth largest inland port, as well as 10 major trucking companies utilizing interstates I-40 and I-55. It’s no wonder that FedEx World Hub makes Memphis its home, and UPS chose it as a major hub.

Hank Martin, NAI Saig Co.

Hank Martin, NAI Saig Co.

With those constants in place, the most notable recent change is the expansion of the submarkets, and how they compete for the warehouse and distribution business. In the past, when companies scouted new space in the Mid-South region, their focus was solely within Memphis and Shelby County. Now, neighboring counties in the Memphis MSA have become hotspot submarkets in recent years, in particular, Fayette County, Tenn., and Marshall and DeSoto counties in north Mississippi.

Leading the charge, Fayette County had the largest lease ever recorded in the Memphis MSA. Tire & Battery Corp. launched its 2016 market expansion when it relocated from a 700,000-square-foot property in Shelby County to an approximately 1.5 million-square-foot building at Panattoni Development’s Gateway Global Logistics Park in Fayette County. In Marshall County, Niagara Bottling Co. purchased a 550,000-square-foot building, bringing total absorption in the submarket to more than 2 million square feet.

The largest absorption rate of these submarkets for 2016, however, went to DeSoto County, which finished the year with 2.6 million square feet total absorption. In Legacy Park, Hillwood Development leased more than 90 percent of its 1.2 million square feet of speculative buildings. GENCO, a FedEx company, leased 600,000 square feet of its new 800,000-square-foot Building 2. Meanwhile, Menlo Worldwide Logistics took over 297,000 square feet.

Hillwood Development is now considering breaking ground on another speculative building in the park. DeSoto County was also a prime location for notable industrial transactions with other existing companies. PFS Web Inc. signed a 275,400-square-foot lease in IDI Gazeley’s Stateline Business Park.
Although these new submarket hotspots headlined gains in 2016, Memphis proper continued a steady pattern of growth, maintaining a strong performance among its existing buildings and keeping vacancy rates low and absorption rates high. The direct vacancy rate of the Memphis industrial market went from 9.1 percent in 2015 to 7.8 percent at the end of 2016.

In 2016, the Memphis MSA gained a competitive advantage. The Economic Development Growth Engine for Memphis and Shelby County (EDGE) passed a new fast-track Payment-in-Lieu-of-Taxes (PILOT) program, which grants incentives for businesses to locate in Memphis. This new fast-track program will enable Memphis and Shelby County to compete with its neighboring counties in Tennessee and Mississippi on a more level playing field.

Looking ahead to the rest of 2017, all signs indicate another great year. Hillwood Development announced plans to break ground, not only in Legacy Park with another 1 million square feet, but also in Desoto Trade Center with a 1 million-square-foot speculative building. In addition to Hillwood’s development, Core5 is closing 72 acres of land in Desoto County across the street from Desoto Trade Center, and has plans to break ground on a 300,000- and a 500,000-square-foot building mid-year. Marshall County continues its fast-paced expansions, as Panattoni Development will complete a 650,000-square-foot speculative building in early spring and announced that another building will break ground later in the year.

The pattern of growth established by these developments, along with deals currently tracking in the market representing an additional 6 to 8 million square feet, proves that Memphis still has room for continued development. As for the future, one market yet to be fully tapped is the small- to medium-sized tenants. There has been a lack of new developments over the past few years for tenants seeking 50,000 to 100,000 square feet. With rates in this area of the market reaching the $3.50 to $4.00 per square foot range and very few vacancies, there is room for development in this underserved market.

— Hank Martin, SIOR, CCIM, Vice President, NAI Saig Co. This article originally appeared in the March 2017 issue of Southeast Real Estate Business.

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