Market Reports

When it comes to grading commercial office space, there is no doubt that location is still king — and other factors such as price, architecture, functionality and amenities all take a back seat to the property’s location. Since we assign buildings letter grades (A and B), let’s take a look at what these letter combinations mean and the relationship of quality to location. In these scenarios, the first letter describes the building’s class (A or B) and the second letter represents the desirability of its location (A or B). The A/A designation refers to Class A buildings in Class A locations. It’s no surprise that this is the first category of office space absorbed when a market heats up and leasing volume intensifies. During this stage of the cycle, rental rates to inch upward, and more importantly, lease renewal terms tighten as landlords sense a shift toward the middle. For Memphis, Tenn., the total vacancy for Class A space in the East Memphis submarket decreased from 2.9 percent during third quarter 2014 to 2 percent in fourth quarter 2014. Almost 24,000 square feet of Class A office space in the East submarket was leased during fourth quarter 2014, and this …

FacebookTwitterLinkedinEmail

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 …

FacebookTwitterLinkedinEmail

Nashville has quickly become one of the most active Southeast markets for multifamily, both in terms of development and sales. Driven by tremendous job growth, strong population increases, a pro-business climate and an educated workforce, Nashville’s remarkable multifamily growth is not overstated. From 2014 to 2017, more than 12,300 units are projected to enter the market, with another 9,000 that are planned or proposed. Concerns have arisen that Nashville’s supply will outpace the demand in the medium term. However, job growth indicators, sales activity and lease-up velocity indicate the contrary. Nashville’s economy has surpassed the $100 billion mark with a 5.1 percent unemployment rate and a 4.2 percent GMP growth rate that is double that of the rest of the nation. Notable recent expansions include General Motors (1,800 jobs), Under Armour (1,500 jobs), Magna International (357 jobs), and FedEx (347 jobs) — all of which were announced in the second half of 2014. In addition, Bridgestone America has announced that it will consolidate its operations in Nashville adding 600 jobs. These expansions combined with immense foreign direct investment continue to fuel the area’s growth. According to IBM’s 2014 Global Location Trends Report, Tennessee ranks first in the nation in terms …

FacebookTwitterLinkedinEmail

Jack Daniels, FedEx and Gibson Guitar are a few international brands that already call Tennessee home, and the list has expanded over the past two years, as major brands have chosen to grow their operations in Middle Tennessee. Recent industrial relocations including Under Armour, Beretta and Hankook Tire are a few notable companies that chose Nashville over other major markets in the U.S. In addition, existing companies such as General Motors, FedEx and Nissan continue to expand their footprint in the region, creating more jobs and building larger facilities. All of this activity has created the demand for more site-ready properties that can accommodate build-to-suit projects and be delivered quickly. Nashville’s continued evolution as the South’s leading auto manufacturing hub, as well as its favorable central location, has bode well for the industrial market over the last few years. Favorable Fundamentals Nashville’s industrial market vacancy rate of 7.1 percent at the end of fourth-quarter 2014 is the lowest it has been since the fourth quarter of 2008, and the 2014 total net absorption has reached more than 2.25 million square feet, the highest absorption since 2006. This year is projected to be a banner year for new construction with multiple …

FacebookTwitterLinkedinEmail

Nashville is now an established growth leader regionally and nationally. The city was a national trailblazer as the U.S. economy recovered from the Great Recession. That head start positioned Nashville to take advantage of broader growth trends and stay ahead of the pack as the remainder of the region and country started to grow again. Moody’s Analytics places Nashville firmly in an expansion phase, with fourth quarter employment growth 330 basis points ahead of the prior year, in-migration driving single-family housing permits up 13 percent last year and accelerating wage growth. Quoting Moody’s, “With the commercial real estate market tightening quickly, the pace of hiring will soon be contingent on how quickly new offices can be built or renovated. Yet there is still a good chance office-using employment could beat expectations, especially after 2016.” Class A buildings continue to dominate growth. Overall absorption for 2014 totaled 666,639 square feet, while Class A absorption was 689,009 square feet. Absorption exceeded construction by over 200,000 square feet, and Class A vacancy dropped from 5 percent at the beginning of the year to 3.5 percent at year-end. Vacancy that low inhibits movement, as is obvious in Brentwood with only 45,000 square feet vacant, …

FacebookTwitterLinkedinEmail
Ovation Nashville

The Nashville retail market continues to gain momentum. With approximately 338,773 square feet of retail construction underway, Nashville remains in a growth and expansion phase, with nationally recognized retail that offers unique options for tourists and locals. In 2014, approximately 53 restaurants opened, most notably Chauhan Ale and Masala House, Sinema, Prima, Acme Feed & Seed, Adele’s, City Winery, Two Ten Jack, Moto Cucina + Enoteca, Epice and Party Foul. Most of these landed in hot neighborhoods — The Gulch, East Nashville, 12th South, SoBro and Germantown. Nationally and locally we’re seeing demand for grocery-anchored retail. Demand has outstripped supply by a long shot. Major grocers own much of their real estate, and Publix followed suit in 2014, acquiring some centers it anchors, leaving fewer investor opportunities that will drive pricing and also move some investors into opportunities anchored by regional or independent grocers, or shadow-anchored assets. We actually expect non-retail projects to change the dynamic in Nashville in 2015. Within the Downtown loop, retail was non-existent, but with 1,000 new hotel rooms, 2,493 residential units and several new office projects under construction, bringing 5,000 more workers downtown, retail will follow. The $232.6 million Highwoods development for Bridgestone’s U.S. headquarters …

FacebookTwitterLinkedinEmail

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, …

FacebookTwitterLinkedinEmail

Nashville’s commercial real estate market accelerated in 2013 as both lease and sales activity reached pre-recessionary levels. A number of new development projects were announced to account for the tightening vacancy as Nashville’s economy progressed with lower unemployment than the U.S. average. It was a big year all around in 2013 as Nashville was nationally praised for its fast-growing suburbs, new businesses and careers and the much hyped up-and-coming culinary scene. Furthermore, Nashville made a solid case for its newest accolade as one of the ‘Top Markets to Watch’, by the Urban Land Institute. The city’s economy proved to be resilient and competitive with low unemployment and new businesses entering the market. November 2013 recorded 5.8 percent unemployment in Davidson County, 1.2 percent less than the national average. Low Vacancy Nashville retail is currently experiencing its lowest vacancy in years. At the end of 2013, the overall vacancy rate dropped to 7.8 percent, down from last year’s year-end vacancy rate of 8.3 percent. At the peak of the recession in 2010, Nashville recorded a retail vacancy rate of 10 percent. The recent improvement trend over the past two years is a result of the city’s low unemployment numbers and business-friendly …

FacebookTwitterLinkedinEmail

E-commerce and the automotive industry drove a resurgent Nashville industrial market in 2013, and we predict another strong, steady year for absorption and investor demand this year. Perhaps the biggest question mark, though, revolves around backfilling second-generation space as its former occupiers move into new build-to-suits. This factor is indicative of robust build-to-suit activity, and while it may increase vacancy early in the year and stall speculative development, the market’s overall health and forward momentum is unquestionable. Nashville’s 200 million-square-foot industrial market closed 2013 with vacancy at 7.9 percent, down from 8.7 percent at the end of 2012, on positive absorption of 3.4 million square feet. The 55 million-square-foot Southeast submarket proved to be the region’s most active, with 1.7 million square feet of net absorption for the year and a vacancy rate of 10.1 percent, followed closely by the East, with 1.6 million square feet of net absorption and a 13.9 percent vacancy rate. Clearly, build-to-suit activity was and is king in Nashville, as it is in many markets. Four build-to-suit projects are currently underway, including distribution centers for Dex Imaging, Allied Modular, Hogebuilt and Panattoni Development Co.’s 240,000-square-foot building for medical products firm Hollister. Panattoni also delivered a …

FacebookTwitterLinkedinEmail

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 …

FacebookTwitterLinkedinEmail