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Momentum. In a word, that’s how 2012 ended in the Memphis industrial market. Nearly 3 million square feet of net absorption in the fourth quarter of 2012 helped the market end the year with 2.3 million square feet in positive absorption — setting the tone for what we expect to be a solid 2013.
The uptick in fourth quarter net absorption caused vacancy rates to fall to 12.5 percent, down from a high of more than 13 percent. But those vacancy rates can be a bit misleading when you look specifically at Class A space, where vacancy rates are at 10.4 percent.
In 2009, industrial development in Memphis totaled only 743,000 square feet in combined under construction and delivered space. Things began improving in 2010 and 2011, with approximately 2 million square feet under construction and/or delivered in both years. In 2012, that number increased by 50 percent to more than 3.1 million square feet.
What’s particularly noteworthy about construction activity in 2012 is that it includes speculative development, something the market hasn’t seen in quite a while. IDI has already delivered one spec building totaling 286,000 square feet and has another 870,000-square-foot spec building under construction, both in DeSoto County, Miss., just across the Tennessee state line. This is where Memphis is likely to see much of its future industrial development, as incentives are aggressive and major investors already have land ready and waiting.
Speaking of investors, investment sales were on the rise in 2012 with more than $14 million in transactions.
At the end of 2012, the Memphis industrial market consisted of approximately 230 million square feet of industrial space. Of the 141 industrial markets tracked by CoStar, Memphis ranks 29th in total square feet, putting it in the top 20 percent of industrial markets in the country. However, the city’s overall quoted rates — at $2.71 per square foot as of the end of 2012 — ranks 138th. Compared to the national average industrial rental rate of nearly $5.20 per square foot annually, industrial space in Memphis is an unbelievably good value. And that’s before factoring in a virtually unmatched combination of “logistical amenities” Memphis offers industrial users. Memphis is home to FedEx and, therefore, North America’s busiest cargo airport.
The Memphis market has the second largest inland port on the Mississippi River, handling 11 million tons of cargo per year. The market also has more than 200 fixed-route, regularly scheduled common carriers with access to I-40, the nation’s third busiest trucking corridor, and I-55, America’s primary north/south corridor for the Midwest. Norfolk Southern’s new Memphis Regional Intermodal Facility is one of four intermodal yards, including the Union Pacific facility in Marion, Ark., the CN-CSX intermodal yard south of President’s Island and the BNSF facility at Lamar Avenue and Shelby Drive.
Watch for more spec development, particularly in DeSoto County, and a continued reduction in Class A industrial vacancy rates in metro Memphis in 2013.
— Andy Cates, SIOR, executive vice president of brokerage for Memphis office, Colliers International