Hank Martin, NAI Saig Co.
Memphis has acquired many nicknames since its establishment in 1819: Blues City, Birthplace of Rock ‘N Roll, and Bluff City just to name a few. However, one name that has managed to work its way to the top of the list in recent years is America’s Distribution Center. Metropolitan Memphis, located in the southeast corner of Tennessee, northwest Mississippi and eastern Arkansas, contains approximately 4,598 square miles and is inhabited by approximately 1.3 million people. As one of the few MSAs to include three states, the Memphis region plays an integral role as the cornerstone of the Mid-South area.
With a central location and rich transportation infrastructure, Memphis transformed into the regional and national distribution and logistics hub. Memphis’ transportation infrastructure is comprised of the four Rs: runway, rail, river, and road. Memphis International Airport was named the largest air-cargo airport in the United States for 18 consecutive years. It is now tied for first in the world with Hong Kong International Airport. Memphis is one of only three cities in the US that has five of the seven Class I railroads: Union Pacific/Southern Pacific, Burlington Northern Santa Fe (BNSF), CSX Corp., Norfolk Southern and Canadian National Railroad (CN). The port of Memphis is the largest still-water port on the Mississippi River and the fourth-largest inland port in the nation. There are seven federal highways and two interstates that run through Memphis, allowing goods to reach 152 U.S. submarkets overnight by truck.
With over 145 million square feet of industrial space, companies such as Volvo and Target recently chose Memphis over all other major markets in the United States. In addition, existing corporations such as FedEx, Technicolor and Nike continue to expand their footprint in the region, creating more jobs and building larger facilities. Memphis’ continued evolution as the Mid-South’s leading distribution, logistics, and manufacturing hub has caused its industrial market to boom in recent years.
Absorption Up, Vacancy Down
The Memphis industrial market ended 2014 on a high note, absorbing more than 2.5 million square feet for the quarter and rounding out the year at an overwhelming 4.9 million square feet of positive absorption — the fourth-highest absorption on record and the highest since 2006, according to Xceligent research. Every submarket reported positive absorption with Marshall County and the Southeast leading the industrial market with a combined 1.8 million square feet. Vacancy rates significantly dropped by 2.09 percentage points, going from 15.19 percent at the end of 2013 to 13.11 percent by the end of the fourth quarter 2014.
Investment, Leasing Activity
Memphis continued to remain a prime target market for industrial investors entering the market and existing investors who made new acquisitions in 2014.
Low interest rates and aggressive cap rates in primary markets have forced investors to pursue profit and invest in cities like Memphis. Memphis closed out the year with more than $170.9 million in industrial deals according to Real Capital Analytics. The majority of transactions completed in the fourth quarter were located in the Southeast and DeSoto County submarkets, the new hot spot for investing in Memphis.
Leasing activity remained strong while lease rates increased with an average rate of $3.47 NNN for the fourth quarter 2014. Notable deals include Volvo’s new 1 million-square-foot distribution center completed in Marshall County, adding 250 jobs in the emerging market and anchoring the development of Gateway Global Logistics Center, and Memphis’ win over Mississippi in Target’s new 900,000-square-foot online fulfillment center.
Planned/Under Construction
The Memphis area has several noteworthy projects in its pipeline for 2015, totaling well over a million square feet of space. Marshall and DeSoto counties specifically will continue to flourish due to the current tax advantages that aid in lowering operating costs. Gateway Global Logistics Center is already undergoing construction for Panattoni’s 554,000-square-foot spec building and is expected to be complete in early 2015.
Hillwood also announced plans to break ground on its 4 million-square-foot spec development in DeSoto County: Legacy Park, where the vacancy rate was hovering at close to 10 percent at the end of 2014. Hillwood’s first two buildings included an 800,000-square-foot cross-dock distribution facility and a roughly 200,000-square-foot front-load facility.
Where We’re Going
Memphis’ industrial market saw an ideal combination of healthy leasing activity with little negative absorption in 2014, making it a model year for absorption and leasing. The industrial market outlook for 2015 is hopeful with rental rates projected to rise, new projects set to break ground, and others nearing completion.
With its abundant quadramodel transportation abilities and affordable lease rates, Memphis naturally becomes a top tier choice for national and international corporations and investors.
— By Hank Martin, Vice President, NAI Saig Co. This article originally appeared in the March 2015 issue of Southeast Real Estate Business.