The retail market in Memphis has continued to improve over the past year with new developments now open for business and redevelopment projects popping up across the metro area. Memphis, most commonly known for its blues and barbecue, has recently become the dreamland for those looking to lease, buy or redevelop assets. Vacancy rates are falling, new tenants and stakeholders are entering the market and retail investment sales continue to be in high demand. With several new development projects in the pipeline, the metro area is looking to capitalize on the new infrastructure.
Memphis, located in the southwest corner of Tennessee within Shelby County, boasts a large metropolitan statistical area comprising Crittenden County in Arkansas; Benton, DeSoto, Marshall, Tate and Tunica counties in Mississippi; and Fayette and Tipton counties in Tennessee. One of the most attractive features of life in Memphis is the area’s remarkably low cost of living, which has allowed Memphis to become the city where one eats and stays instead of eats and plays, adding increasing demand on the commercial real estate market. According to a variety of real estate professionals doing business in the area, national and international investors and developers are looking to Memphis because the market is stable and the returns are high.
Brian Califf, NAI Saig Co.
The Memphis retail market ended 2015 with more than 350,000 square feet of positive absorption, doubling 2014’s absorption, according to Xceligent. The most noteworthy addition to the retail market was the completion of the Tanger Outlet in Southaven, Miss. Hosting its grand opening in November, the 310,000-square-foot center is home to more than 70 upscale, brand name and designer outlet retailers, including Michael Kors, Lucky Brand, Talbot’s, White House Black Market and Coach. Located at I-55 and Church Road, the Tanger Outlet is expected to generate roughly $7.5 million annually in sales tax revenue.
Two other areas of focus for retail investment and leasing are northeast Memphis and Germantown, Tenn. First came Sprouts Farmers Market, a Phoenix-based specialty grocery chain. The grocer opened its first location in Lakeland in May 2015 and its second location in Germantown in July 2015. Whole Foods Market jumped in on the action, opening its second Memphis-area location in August at Poplar Avenue and Exeter Road in Germantown.
Finally, the long-awaited announcement of Trader Joe’s entrance into the Memphis market came in late September last year. The new Trader Joe’s store is expected to open at 2130 Exeter Road in the fall of 2016. The entry of Sprouts and Trader Joe’s into the Memphis market is the latest sign of the massive amount of activity in the local grocery sector where retailers, led by market-leader Kroger, have invested heavily in repositioning existing stores or have opened new locations.
Downtown Memphis and The Pinch district have also proved to be sure bets for retail expansion and redevelopment in the past year. Some of the most notable projects in the pipeline are the $53 million redevelopment of Central Station, which will deliver a new hotel, Malco movie theater, restaurant and apartments to the popular South Main area, as well as the recent announcement of the Mud Island River Park redevelopment in downtown Memphis. In early November, St. Jude Children’s Research Hospital and its fundraising arm, American Lebanese Syrian Associated Charities (ALSAC), announced what could eventually be a $7 billion expansion in the Pinch District. Plans include 1,000 new faculty and staff positions, a 20 percent increase in the number of patients treated and a focus on curing sickle cell anemia. Additionally, St. Jude recently unveiled the St. Jude Red Frog Events Proton Therapy Center in early December, a $90 million project that will be the only proton therapy center in the U.S. to treat children.
International investors have also played a key role in the growth of the Memphis retail market. The Israeli investment firm Faropoint is looking to expand its Memphis footprint by pledging $50 million for future Memphis-area acquisitions in 2016. The firm started buying in Memphis in 2011 as an alternative to the expensive property, and low returns, in the Israeli market. Faropoint now owns more than 500,000 square feet of office and retail space in the Mid-South area. In December, the firm acquired the Orleans Place in prime East Memphis, a 30,000-square-foot shopping center, and is planning an extensive renovation and rebranding of the property.
The Memphis retail market saw a healthy combination of leasing, sales and redevelopment across the metro area in 2015. National and international investments remain strong, paired with local initiatives promising to breathe new life into Memphis, have created the ideal situation for the commercial real estate market. The outlook for 2016 is encouraging with new developments on the horizon and retailers looking to expand in Memphis.
— By Brian Califf, CCIM, Executive Vice President, NAI Saig Co. This article originally appeared in the March 2016 issue of Southeast Real Estate Business.