The Memphis metro is an interesting industrial market. Like many other markets, we’ve begun to see positive signs in the numbers. 2011 ended with positive absorption of more than 1.6 million square feet. Because nearly all of the space added in 2011 was build-to-suit, vacancy rates have begun to decline a bit. IDI has just announced plans to build two buildings totaling 1.1 million square feet in Olive Branch, Mississippi, which will be the first new speculative development since 2008.
But it’s hard to look strictly at the numbers and really get a sense of our market. That’s because, when compared to behemoths like Chicago and Dallas, we are a relatively small industrial market, with approximately 210 million square feet, depending on how you count the space. This creates significant volatility in the numbers when a major lease is won or lost. So it is the fundamentals that paint a better and more realistic picture of the Memphis market. Though relatively small in size, we’re a giant in terms of the infrastructure that makes us attractive to major players. A few of the major leases during the last 12 months help illustrate that: Trane’s 626,00-square-foot lease, California-based online retailer Newegg Inc.’s lease of 414,000 square feet, and Kimberly Clark’s lease of 556,000 square feet.
Memphis has long been known as “America’s Distribution Center.” More recently, we’ve been recognized as one of only a few cities identified as an Aerotropolis, which is defined as “an urban form whose layout, infrastructure and economy is centered on an airport, offering its businesses speedy connectivity to suppliers, customers and enterprise partners worldwide.” Memphis is home to FedEx and therefore, North America’s busiest cargo airport. But that’s just the start. We have the second largest inland port on the Mississippi handling 11 million tons of cargo per year. We are served by five Class-1 railroad systems, and more than200 fixed-route regularly scheduled common carriers with access to Interstate 40, the nation’s third busiest trucking corridor, and Interstate 55, America’s primary north/south corridor for the Midwest.
In addition to great multi-modal transportation options, we have relatively low labor costs — and a high percentage of workers trained specifically in distribution and transportation. Then you can factor in competitive rental rates which have been hovering around $2.75 double net — though likely to be inching up as vacancy rates can drop pretty quickly in a market of our size when it isn’t that unusual to see leases of over half a million square feet.
Finally, there’s nothing more fundamental to real estate value than location. Nearly 75 percent of the U.S. population can be reached within 48 hours from the Memphis metro. The recent Newegg transaction highlights a trend that we anticipate will further solidify the fundamental soundness of the Memphis industrial market. The explosion in e-commerce means that more companies will look for centrally located cities that can offer cost-effective shipping options.
Like everyone else, we experienced a downturn during the recession. But we see nothing but growth ahead for an industrial market that is as fundamentally sound as it gets.
— Andy Cates, SIOR, is executive vice president of brokerage services at Colliers International’s Memphis office.