Jim Mercer, CBRE Memphis
The most active Memphis submarket continues to be Desoto County, Mississippi. The Desoto submarket has net absorption of 605,314 square feet and a total vacancy rate of only 4.2 percent as of mid-year 2014. Due to its growing service center economy, the second most active market is the Northeast submarket with 158,856 square feet of net absorption year to date. Memphis’ most established submarket, the Southeast submarket, is home to approximately 44 percent of the total floor space in the region and closed the second quarter with a total vacancy rate of 12.5 percent and 2014 net absorption of 123,416 square feet. This trend will more than likely continue as there is a limited supply of larger, developable tracts of land in Shelby County, Tennessee, in addition to more aggressive tax abatements and a less cumbersome incentives process in Mississippi.
At the beginning of 2014, the CBRE Memphis MarketView reports added two new submarkets: Fayette County, Tennessee and Marshall County, Mississippi. Due to increased activity and anticipated future industrial growth, the Memphis MSA has expanded coverage of these areas because these counties will play an important role as industrial activity expands eastward. This growth is exemplified through:
• The opening of Norfolk Southern’s 570-acre intermodal yard at Rossville, Tennessee in July 2012
• The expected completion of I-269 connecting I-40 to I-55 in fall 2015
• The 1,500-acre Gateway Global Logistics Center development by Panattoni Development Co.
Gateway Global, located in both Marshall County, Mississippi and Fayette County, Tennessee has its first park occupant: Volvo, which is building a 1 million-square-foot distribution center for its truck division. Other activity in the area includes Roxul’s 600,000-square-foot, $130 million wallboard manufacturing plant, MCR Safety’s new 500,000-square-foot warehouse in Piperton, Tennessee and the recently announced 324,144 -square-foot expansion of Asics America’s 514,000-square-foot distribution facility in May of this year. Based on this activity, Panattoni Development has also broken ground on a 554,000-square-foot (expandable to 1.08 million square feet) speculative warehouse inside its Gateway Global Logistics Park. Tenant fixturing is scheduled for December 2014.
With the increased leasing activity, the market is experiencing a wave of speculative warehouse construction which it hasn’t seen since 2008. In addition to Panattoni’s new speculative warehouse in Marshall County, other new developments include IDI’s speculative 861,252-square-foot and 430,212-square-foot warehouses in their Crossroads Distribution Center in Desoto County.
Prologis is also developing a 216,000-square-foot speculative warehouse in Prologis Park Desoto, of which 62,400 square feet was pre-leased to Owens & Minor. Hillwood has recently received a re-zoning approval for the development of its 265-acre Legacy Park located on Highway 302 in Olive Branch. Also in Mississippi, Hillwood developed a 515,000-square-foot facility for Jimco Lamps in their Desoto Trade Center park in Southaven.
Activity is driving rental rates upward, which has led to an increase in investment sales activity as cap rates have fallen below 7 percent for long-term credit tenant leases. Recent sales have included Greenfield Partners purchase of a nine-building portfolio (1.14 million square feet) at Memphis International Airport Center for $24.2 million; Exeter Property Groups’ purchase of 2.11 million square feet of Class A space for $62.9 million; and Taurus Industrial Development buying Mendenhall Business Center from RREEF for $16.95 million.
In addition to new leasing activity, the market has been buoyed by numerous lease renewals and expansions of existing facilities. Dohmen Life Sciences recently renewed 320,000 square feet and took down an additional 308,000 square feet at Midway Distribution Center. Nike Inc. also renewed its 400,000-square-foot NFL distribution lease at Centerpoint in Memphis along with its 536,900-square-foot Nike Golf facility lease on Davidson Road, also in Memphis. Third-party logistics giant Ceva Logistics renewed its Pleasant Hill Drive lease of 648,758 square feet while PFS Web, also a third-party logistics company, renewed its Southpoint lease of 442,184 square feet.
Lastly, the market continues to see expansion with the railroads as all major Class I railroads operating in Memphis are expanding their intermodal businesses. BNSF, Norfolk Southern, Union Pacific and Canadian National have, or are currently, expanding their intermodal footprint to capitalize on the growing trend of distributing product by rail.
— Jim Mercer SIOR, Executive Vice President of Industrial Brokerage Services, CBRE Memphis. This article originally appeared in the October 2014 issue of Southeast Real Estate Business.