Inflation is here. Is the Memphis multifamily market built to withstand it?
Coming off an unprecedented year of sales volume in 2021, Memphis multifamily assets continue to be in high demand despite rising interest rates. While year-over-year sales volume might be down, the average market sale price per unit increased by 10 percent to $90,700 over the same period, as of second-quarter 2022.
While overall market rent per unit growth is off double-digit highs from 2021, it is still up a sturdy 8 percent year-over-year. Strong occupancy levels, low concession rates and limited on-market supply is keeping pricing buoyant, leading to steady cap rates in the face of rising debt cost — at least for now.
Capital investment and renovation to existing multifamily properties contributed greatly to both rent growth and sales volume in 2021. Memphis is a very appealing option for investors seeking value, as over 50 percent of all transactions in 2021 fell within the $40,000 to $80,000 per unit range, which is much more competitive than many primary markets.
With over two-thirds of existing inventory built before 2000, the vintage of current inventory provides ample opportunities to reposition assets.
Local government entities have actively played a role in recent years by offering tax incentives to revamp distressed assets that are strategically located.
Looking forward, the repositioning of these assets looks to continue, while new construction remains steady in the central business district and eastern suburbs.
Significant job development and job creation look to support continued renter demand and rent growth in Shelby County’s rapidly expanding role as a distribution center. According to the county’s economic development site, “The MSA has enjoyed record-breaking growth while the area’s widely recognized role as ‘America’s Distribution Center’ is morphing into a new reality — ‘North America’s Logistics Center.’”
This reality is driven by geographic convenience and businesses believing in the city’s potential as a base for their operations. The city’s location at the convergence of five Class I intermodal railroads, just below the snow line at the geographic heart of America, makes it a natural fit for logistics, creating ample opportunities for job growth and rental demand.
Truckers reliably reach two-thirds of the American population in two days or less, while its port on the Mississippi River gives Memphis an important presence on the nation’s major inland waterway.
In addition, Memphis plays a key role in the future of Interstate 69, known by its “NAFTA Superhighway” nickname. Once complete, it will span from the Canadian border to the Mexican border, with Memphis serving as the halfway point along the route.
Not to be outdone by land and sea, Memphis International Airport’s status as the busiest cargo airport in the country is intact. The airport’s plans for future expansion cement the city as a superhub. Completed and upcoming projects from companies such as FedEx, UPS, USPS, Nike, Amazon and Ford are all contributing entities that are driving this reality.
Amazon has invested $200 million in an 855,000-square-foot fulfillment center. It is the first facility in Tennessee to use iAmazon Robotics technology to pick, pack and ship smaller items such as books and electronics. The facility will create 1,000 new full-time jobs.
Nike North America Logistics Campus Memphis is the largest Nike distribution center worldwide. The state-of-the-art, 2.8 million-square-foot facility holds all three product lines — footwear, apparel and equipment — and contributes over 900 jobs to the market.
Perhaps the most impactful Memphis business news of 2021 was the announcement of Ford and SK Innovation’s planned Blue Oval City in nearby Stanton, Tennessee. Blue Oval City, scheduled to be delivered in 2025, will manufacture electric vehicles and batteries on a 4,100-acre campus. The $5.6 billion investment will create 5,760 jobs at Ford alone with thousands more during construction and further bolstered by suppliers and partners going forward.
The development of Blue Oval City will benefit the entire market and is already encouraging new capital investment in the eastern suburbs and small towns throughout the metro Memphis area.
So yes, the full extent of inflation’s impact on the Memphis multifamily market remains to be seen. However, the overall Memphis economy is in a strong growth position with more jobs and families on the way, and those families will need a place to live.
— By Bryan Sisk, Senior Associate, Marcus & Millichap. This article was originally published in the July 2022 issue of Southeast Real Estate Business.