Rail, river, runway and road offer a robust quadra-modal transportation solution in Memphis, which creates an environment for on-going real estate development, investment and job growth in the region. Five Class 1 railroads operate major facilities in the Memphis metro. In recent years those railroads have collectively invested more than $1 billion in infrastructure to serve a growing customer base.
Likewise, Memphis International Airport, the largest cargo airport in the U.S. and second-largest in the world, has been the center of much investment and activity. FedEx is currently adding an 88,000-square-foot, $20 million “cold-chain” facility at the airport to handle highly specialized bio-medical shipments, and UPS has recently leased an additional 26 acres on the airport property for a reported $80 million expansion of its existing Memphis airport sort facilities.
Manufacturing Growth
According to the Federal Reserve Bank of St. Louis, manufacturing job growth continues to outpace the U.S. with a 1 percent increase compared to 2012, while the nation only saw 0.1 percent growth in jobs overall. Manufacturers have been increasingly vigorous in the last several years, taking advantage of the go-to-market transportation infrastructure and a low-cost business environment with investments in new or expanded facilities by Nucor Steel, Mitsubishi Electric, Electrolux, Roxul, Smuckers and Unilever.
Mark Herbison, senior vice president of economic development for the Greater Memphis Chamber, suspects the city recruited as many (or more) manufacturing jobs as any region in the country.
Return of New Construction
A few large build-to-suit or owner-developed projects were commenced or completed in 2013 in the greater metro area, including Jimco Lamp (500,000 square feet), Helen of Troy (1.3 million square feet) and MCR Safety (500,000 square feet). Genco and Kenco (third-party logistics firms) are rumored to be finalists for a pharmaceutical user and an automotive company totaling more than 1.5 million square feet of space. This trend will likely endure due to the favorable tax rates in the outlying counties combined with the much-improved interstate access now afforded by the completion of the new circumferential Interstate 269/SR 385 expressway.
The completion of these roadways has allowed the Memphis industrial market to expand and create new submarkets in the outlying area. All indications suggest the Memphis metro industrial markets have both rebounded and are expanding as a preferred location for manufacturing and distribution, according to Mark Jenkins, executive vice president of industrial leasing for Cushman & Wakefield | Commercial Advisors.
2013 Proved Strong
With more than 3.2 million square feet in direct net absorption for 2013, there appears to be demonstrated strength and a return to pre-recession leasing levels. Overall market vacancy in properties of all classes dropped 0.4 percentage points from the previous year to end 2013 at 15.1 percent. In the fourth quarter, the largest lease transaction was Genco, which leased 533,000 square feet in the DeSoto submarket. Other leasing transactions of note in 2013 included: BizChair (382,500 square feet), T.J. Maxx (414,000 square feet) and Bryce Corp. (338,000 square feet).
The Memphis industrial market consists of more than 147 million square feet of space spanning across a three-state metro region — Tennessee, Mississippi and Arkansas. The overall market average asking rate held steady at $2.57 per square foot, with rents in the Southeast Memphis submarket remaining flat while the Desoto submarket performed well with healthy rent increases to above $3.00 per square foot and a market-low vacancy rate of 5.7 percent.
Improving fundamentals in 2013 increased interest and activity in the Memphis real estate industrial investment sales for institutional grade properties, evidenced by near historical pricing. The market saw institutional-grade sales of more than $300 million and capitalization rates for Class A investments ranging from 7 percent to 8 percent. In 2014, the market is expected to see a bounce in volume for Class B industrial product as investors search for value-add opportunities. Special servicers continue to be active in the market as owners as a result of mortgage defaults and foreclosures.
Outlook
There’s no doubt about it — transportation, supply chain, logistics, distribution and related businesses generate and sustain the momentum in the Memphis industrial and manufacturing markets. The market is expected to see good activity the first half of 2014 with carryover from deals that did not get finalized in 2013. There is a pipeline of around 7 million square feet of prospects in the market. Most of these requirements are in the 400,000- to 600,000-square-foot range, indicating a rise in Class A bulk demand. Rental rates for 2014 are projected to remain flat, although the market may experience some dramatic increases for Class A bulk vacancies for spaces greater than 500,000 square feet as those availabilities dwindle.
— By Larry Jensen, President and CEO, Cushman & Wakefield | Commercial Advisors. This article originally appeared in the March 2014 issue of Southeast Real Estate Business.