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VOL. 128 | NO. 251 | Friday, December 27, 2013

Industrial Uptick Seen in Outer Counties

By Amos Maki

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The Memphis industrial market saw the return of speculative development in 2013 and an uptick in tenants seeking blocks of 500,000 square feet or more.

After suffering through a prolonged slump in industrial construction activity following the economic collapse and resulting recession, industrial development outside of Shelby County in the Memphis market roared back to life in 2013.

CATES

“One of the big trends we saw was the continued development in counties outside of Shelby County,” said Andy Cates, executive vice president of brokerage services for Colliers International Memphis. “There was a return of speculative development, something that hasn’t been here for a few years.”

This year, Industrial Developments International (IDI) launched an expansion of the 478-acre Crossroads Distribution Center with several new speculative buildings: the 241,000-square-foot Crossroads L building, the 430,212-square-foot Crossroads D building and the 861,252-square-foot Crossroads H building.

Panattoni Development Co. is building a 554,000-square-foot speculative warehouse that can be expanded to 1.3 million square feet in the Marshall County, Miss., portion of its 1,500-acre Gateway Global Logistics Center industrial development.

Hillwood Investment Properties announced plans for a 514,980-square-foot building in DeSoto Trade Center. Hillwood described that building as speculative, but indications are that the building is being built for an existing client.

Increased leasing opportunities and the dearth of new development over the last five years fueled the building boom.

“With the decreasing vacancy rates and no new construction since 2008, the market needed new, larger blocks of space as the existing inventory of space was leased up as the national and local Memphis market began to rebound from the recession,” said Jim Mercer, executive vice president of CB Richard Ellis Memphis. “Also, with the return of investors paying lower capitalization rates and higher per-square-foot prices for industrial facilities, developers grew more confident that their new buildings would be quickly purchased upon lease-up.”

Experts said they believed the construction activity would continue into 2014, with more developers – attracted by increased demand and the prospect of being able to command stronger rents – joining the current building activity.

“I’m fairly certain you’ll see more developers go up with speculative product in 2014,” Cates said. “Growth in rental rates came back to our market about a year and a half ago. Before, the rates would just stay flat so the developers couldn’t see any upside.”

Leasing activity has increased dramatically from the darkest days of the recession.

A CBRE Memphis third-quarter industrial report said the Memphis market has a chance to end the year with 3 million square feet of absorption, the first time the Memphis market would hit the 3 million-square-foot level since 2008.

The overall industrial vacancy rate in the Memphis market dropped to 14.1 percent in the third quarter as the market experienced 1.9 million square feet of absorption, according to Cushman & Wakefield/Commercial Advisors.

The surge in third-quarter activity was led by several large leases, including Technicolor leasing 600,000 square feet at 5461 Davidson Road in the Southeast submarket and GENCO leasing 533,226 square feet in IDI’s Crossroads Building G.

In the fourth quarter, BizChair.com, an Internet retailer that specializes in selling chairs and furniture for offices, schools, restaurants, medical facilities and homes, signed a lease for around 382,500 square feet inside Olive Branch Distribution Center.

Experts said most tenants looking for space in the market are now looking for blocks larger than 350,000 square feet.

“We’re seeing the return of the big bombers,” said Kemp Conrad, principal with Cushman & Wakefield/Commercial Advisors. “All the deals are in the bigger range.”

Local experts predicted that Shelby County would continue to struggle to land industrial tenants, as businesses prefer the larger blocks of space in the new buildings being built outside of the county.

“I think you’re still going to see the development where it is unless it’s build to suit,” said Cates.

Conrad said that while development and leasing activity in areas such as DeSoto County is still a net positive because those locations are part of the greater Memphis area, the lack of development in Memphis and Shelby County is troubling.

“People that are doing speculative construction are the ones winning the big deals,” said Conrad. “From a regional standpoint, I’m glad they’re coming to the region, but Memphis needs to get its fair share of these deals and we’re not right now.”

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 109 433 13,330
MORTGAGES 114 591 17,349
FORECLOSURE NOTICES 11 93 3,391
BUILDING PERMITS 0 366 30,930
BANKRUPTCIES 76 352 12,695
BUSINESS LICENSES 21 108 4,597
UTILITY CONNECTIONS 77 564 19,457
MARRIAGE LICENSES 29 151 4,060

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