Healthy Office, Industrial Climate Make Real Estate A Good Business To Be In

By John Scruggs
– Memphis Business Journal –

Investment sales and the announcement of new office construction dominated the commercial real estate landscape in 2006.

The office market saw strong activity with several large sales including Parkway Properties, Inc.’s $37.6 million purchase of Renaissance Center and NNN Realty Advisors’ $90.5 million purchase of Lenox Park.

J. Kevin Adams, CEO of CB Richard Ellis Memphis, says the office market, from an investment aspect, is still attracting values higher than ever before.

With more companies coming to the area and expansions by existing tenants, he says demand for office product is up.

“The market is continuing to do better and better,” Adams says. “It’s really healthy right now. Even though Downtown will have some vacancies coming up, I think we’re going to see significant leasing in that market because of the amount of space available at attractive rates.”

The bellwether East Memphis submarket saw more absorption in 2006, and shrinking vacancy rates were a factor in the announcement of four new Class A properties along the Poplar Corridor.

Boyle Investment Co. announced the construction of two new 155,000-square-foot buildings at Ridgeway Center. Highwoods Properties has unveiled plans for a 150,000-square-foot building at Poplar and Shady Grove and developer David Peck has started work on a 60,581-square-foot building adjacent to Renaissance Center.

Mark Halperin, Boyle executive vice president, says interest in Boyle’s two buildings has been strong.

“In addition to our anchor tenant, SunTrust Bank, we are in discussions with numerous other Memphis companies, large and small, as potential tenants,” Halperin says. “The two new buildings have generated significant interest due to the quality of their design as well as their prime location in the heart of East Memphis.

John Mercer, director of leasing for Highwoods Properties, says he’s optimistic because of how tight it is along Poplar and even in the 385 submarket.

“The largest space I have on Poplar is 7,051 square feet and I’m subdividing it,” he says. “We’re seeing a lot of demand from small tenants.”

Rents are rising and concessions have long since gone away, he says.

In 2006 the Memphis office market had a total of about 230,000 square feet of absorption. Class A office vacancy in the East Memphis submarket is at an all time low that some market reports, including CBRE’s, have at less than 3%.

At the Commercial Property Forecast Summit in March 2007, Nick Clark, principal of Clark & Clark, estimated East Memphis Class A vacancy at 2.2%.

2006 saw several national real estate companies enter Memphis with new offices including Grubb & Ellis, Marcus & Millichap and Staubach Co.

DeSoto County landed the two biggest deals of 2006. Iron Mountain took 572,000 square feet at Panattoni’s Southaven Distribution Center and Imation signed for 563,000 square feet in Industrial Developments International’s Stateline Business Park. North Mississippi appears to be continuing that run with the recent 600,000-square-foot ScanSource deal at IDI’s Stateline Business Park.

Jim Mercer, executive vice president with CB Richard Ellis Memphis, says the industrial market started off 2006 strong, but has slowed recently.

“Whether that has to do with fuel prices going into the summer, I don’t know,” Jim Mercer says. “But the story is still the pace of new construction in DeSoto County with 3.5 million square feet under construction.”