July 22, 2015

North-South Battle Looms in Industrial Real Estate Market


By Jane Aldinger
– Memphis Business Journal –

The “cautiously optimistic” catch phrase is starting to sound like a broken record for the Memphis commercial real estate market.

Over the past three years, the Memphis market hasn’t been able to shift gears into a faster paced environment of leasing and development, especially in the office arena. Vacancy rates in the office market have not rebounded, finishing the third quarter 2004 at 19.9%, according to CoStar Group, Inc., which calculates Class A, B and C properties. Class A properties posted a vacancy rate of 14.4% and Class B at 21.6%.

But activity is looking brighter in 2005, and just in the last several weeks, tenants are starting to creep out of hiding, says Mark Halperin, Boyle Investment Co. executive vice president. But erring on the side of caution, no one is doing somersaults just yet.

“We’ve seen this before where it looks like it’s getting better and then kind of peters out,” Halperin says. “Hopefully, it will stick this time, and we’ll go into the new year doing some deals.”

There is currently no market for speculative office development, says David Peck, president and CEO of Weston Cos., and he doesn’t expect that to change in 2005. Peck says leasing at Weston’s Renaissance Center is stable and his lease rate there has climbed to about 90% with a secure tenant base, but activity is not astounding.

“The market is slowly but surely absorbing the overhang we’ve seen over the last three years,” Peck says.

On a more positive note, the industrial market is showing signs of resurrection, but that resurrection has come with a new twist. The Shelby County vs. DeSoto County match-up is heating an unparalleled Tennessee/Mississippi rivalry. An industrial real estate professional in Memphis can’t even address the market without citing the competition between borders, a realization that has come to full light in 2004.

Jim Mercer, CB Richard Ellis executive vice president, does not count the contest as a wholly negative circumstance and says Memphis has traditionally been a regional marketplace as it is surrounded by an agrarian economy. Thus, a good deal for DeSoto County or Crittenden County does bode well for Memphis as a regional hub.

Jim Mercer, CB Richard Ellis executive vice president, does not count the contest as a wholly negative circumstance and says Memphis has traditionally been a regional marketplace as it is surrounded by an agrarian economy. Thus, a good deal for DeSoto County or Crittenden County does bode well for Memphis as a regional hub.

“There is some merit to the fact that this is still a regional environment … with businesses growing in this region, it’s going to benefit everybody,” Mercer says.

DeSoto County’s incentive packages and the lack of available land in Shelby County are the main contributors to southern industrial flight, and Memphis’ system, specifically the payment-in-lieu-of-taxes program, needs to be tweaked to continue its strong play. Tennessee does not have a state income tax, which is both a positive and negative for the state. On one had, it is a motivation for development, but on the other, it also squelches revenue streams forcing the city and county to raise taxes to create dollars.

“Nobody’s shutting the lights on Memphis by any means,” Mercer says. The fact that DeSoto County is seeing so much development activity has also changed the game in 2004. IDI, Panattoni and Hillwood are making buildings available and prospective tenants will go where the space is, says Brad Kornegay, Colliers Management Services president.