Public and Private Partnerships Prove Positively Productive for Memphis Retailers

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By the numbers, 2014 was a pretty good year for the Memphis retail market. With over seven million square feet of rentable retail space, the overall vacancy rate decreased roughly one percent since the end of 2013 while rental rates were relatively flat. Not bad. Not great either. It is important to note, however, that Memphis retail is not classified into A, B and C properties like their office and industrial counterparts, so we don’t often get an accurate snapshot of the market’s product availability. The truth is that Memphis is simply running out of space – desirable Class A space, that is.

Because of this lack of available product, new construction is once again on the rise, as is redevelopment of existing structures within the city’s urban core. The good news doesn’t stop there. The willingness of local government entities to support development progress has proven to be instrumental to some very key wins for the Memphis MSA.

This January, Tanger Outlets, a major player in the outlet mall industry, confirmed that it would partner with Poag Shopping Centers to develop a 310,000-square-foot outlet center in Southaven, Mississippi. Southaven and DeSoto County officials approved a $15 million tax increment financing plan to pay for the infrastructure. Tanger’s application for sales tax incentives was approved by the Mississippi Development Authority, making the project eligible for $33.9 million in tax rebates from the state.

In the northeast submarket, the Lakeland Development Corp. was recently formed to offer and direct a broader range of incentives, including payments-in-lieu-of-taxes and tax increment financing, infrastructure and community-improvement projects. The primary motivation for the assembly of the group was to spur the development of a former outlet mall. With these incentives, developer Gilad Development expanded the outlet strategy to create a distinctive mixed-use and lifestyle center that will include office, retail, restaurant and hotel uses, as well as public gathering spaces. Expected occupancy for Gilad’s Lake District is scheduled for 2016.

The Memphis City Council approved the Elvis Presley Enterprises master plan and a tourism development zone to enhance 120 acres of undeveloped property around Graceland, Memphis’ largest tourist attraction. In 2014, ground was officially broken on The Guest House at Graceland, a 450-room hotel expected to open sometime this year. Also recently launched at Graceland is the Archives Studio, a 200-seat facility that houses a wealth of rare Elvis movies, performance videos and music. Another 200,000- to 300,000-square-foot facility for even more Elvis-related attractions is the next component of the master plan.

Ikea announced plans to open a 269,000-square-foot store in the northeast submarket, creating 225 permanent jobs in addition to the more than 500 jobs that could be created during the construction phase. An Ikea Memphis store also could provide significant annual sales tax revenue for local governments and schools. The Economic Development Growth Engine for Memphis and Shelby County approved the basic PILOT proposal for Ikea which includes $9.5 million in tax breaks. The company is expected to pay $15.5 million in taxes during the 11-year PILOT, resulting in a net tax gain of roughly $0.64 on the dollar.

Two public-private partnerships at Overton Square in Midtown gained momentum in 2014. Developer Loeb Properties purchased the historical property in 2010, selling a portion of the southern parking lot to the city of Memphis for construction of a public parking garage. The parking structure sits atop a large detention basin to help ease flooding in Midtown. The city-owned garage is operated by Loeb Properties and is a key amenity to the area, as traffic has exponentially increased. A portion of the land acquired by the city of Memphis was leased to Hattiloo Theatre, an African American repertory company that opened its doors in the summer of 2014. The opening of the 10,500-square-foot facility brings the live theatre count in the area to four, further solidifying Overton Square’s reputation as a true arts district.

Opening May 1, Bass Pro recently held a job fair for more than 600 new positions created by the redevelopment of the Memphis Pyramid. The project is estimated at $191 million. In addition to Bass Pro’s investment, the retail center is getting $41 million in Federal Recovery Zone Facility bonds and $27.7 million in Recovery Zone Economic Development bonds. In addition to roughly 220,000 square feet of retail space, Bass Pro will include a 200-room hotel, bowling alley, restaurant, aquarium, indoor shooting range and educational facilities.

In conclusion, there is a lot more going on in the Memphis retail market than meets the eye. Previously primarily recognized for our music and barbecue, Memphis is rounding a corner and becoming a hub of diverse retail and entertainment options. Perhaps 2015 is the year Memphis emerges as the sleeping giant of the Southeast. The potential is certainly there.

— By Andrew Phillips, SIOR,CCIM, Vice President of Investment & Retail Services at Colliers International; and Ed Thomas, CCIM, Vice President of Office & Retail Services at Colliers International. This article originally appeared in the March 2015 issue of Southeast Real Estate Business.