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VOL. 128 | NO. 28 | Monday, February 11, 2013

Expert: Memphis Has Big Story to Tell

By Sarah Baker

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Memphis area commercial real estate brokers were not only brought up to speed on the latest numbers and trends Thursday, Feb. 7, at the Memphis Area Association of Realtors Commercial Property Forecast Summit – they were also briefed on how to tweak their marketing strategy to recruit business by a former executive with the Federal Reserve.

KC Conway, executive managing director of real estate analytics/valuation advisory services for Colliers International, stressed Thursday at the Germantown Performing Arts Centre that Memphis has a big story that it’s yet to tell.

“You guys really need to understand the port relationships because it’s going to drive a lot more than distribution,” Conway said. “It’ll bring some of those higher-paid logistics jobs, the marketing jobs, the fulfillment center jobs, and it’s a great story for you.

“Elected officials – this is the mindset to put on. Not just that we have great barbecue, the ducks at The Peabody, the Grizzlies are doing well or not well.”

Conway said there are four key areas where Tennessee and Memphis are breaking into the top 15 and 75 rankings. First, Tennessee is in the top 15 states for Foreign Trade Zone imports and exports. Memphis’ FTZ No. 77 includes Sharp, Brother, Komatsu America, Black & Decker Corp. and Cummins Inc.

Tennessee is also ranked in one of only 20 states that have three or more Metropolitan Statistical Areas that are in the National Association of Home Builders’ Improved Market Index. Metrics for that index include positive permit activity, declining foreclosure activity, improving home prices and job growth.

“Memphis is the only large population Tennessee MSA,” Conway said. “Your housing recovery is very real.”

Additionally working in Memphis’ favor is its MSA-level job growth. Memphis ranks 56th of all 360 MSAs, with 5,000 jobs in the latest reconciled numbers from 2011’s third quarter to Q3 2012.

“Those are impressive numbers,” Conway said. “The Southeast and Gulf states are producing jobs.”

And Memphis in January was No. 72 out of the top 102 MSAs in the country for business and economic activity On Numbers Economic Index by American Business Journals.

“When you’re trying to lure industry in here, you need to go beyond, ‘We’ve got a lot of vacant space that you can move into,’” Conway said. “You’ve got a really great story on many economic measures to tell.”

Conway said Memphis’ connectivity to ports, like those in Charleston, S.C., and Mobile, Ala., “is going to be incredibly viable.” The next growth market to surpass Asia will be Latin America, which will see 6 to 10 percent Gross Domestic Profit growth in the coming years. But since the region doesn’t have the infrastructure, manufacturing and sanitation commissions to process foods, all of those processes are likely going to be done in the Southeast U.S.

Meanwhile, intermodal traffic has increased every quarter for nearly three years thanks to a transition from truck onto rail in preparations for the expansion of the Panama Canal. Memphis is poised to benefit from these capacity utilizations, as the country only has seven Class 1 railroads, five of which go through Memphis.

Memphis is also benefiting from Chicago’s inefficient freight system, where it takes 27 hours to move a train across the city. Conway said since Chicago just had “an intermodal heart attack,” the industry is looking for “bypass surgery” in Memphis and Indianapolis.

“Indianapolis just announced they’re going to build a massive intermodal facility with Canadian National Railroad that’s going to connect to Port Rupert,” Conway said. “Your competition is Indianapolis. Your opportunity is Chicago.

“When doing the numbers and looking at the absorption, we talk to IDI, ProLogis and everybody else that is in this market – they’re moving tenants in the industry out of Chicago to Memphis because of what you have in infrastructure.”

Conway applauded IDI for its speculative construction in DeSoto County. The developer last year built 36-foot clear warehouses, so no tenants are excluded.

“This is incredibly quality stuff that you’ve built here and it’s at rents that about half of what the industry is going to find elsewhere,” Conway said. “I don’t know how you build this stuff and only charge three to four dollars a square foot rents. It’s an incredible bargain and it’s another part of the story.”

Furthermore, Memphis’ potential isn’t just in industrial – it’s in office, too. Out of the 71.9 million square feet of office space under construction nationwide, half of it is medical office. Conway said medical office is going to be a huge driver of office demand and Memphis is in a great situation to capitalize on it.

“Our health care delivery system is going to be away from central, expensive hospital campus to more being pushed out into outpatient treatment centers, outpatient dialysis, outpatient your tonsils,” he said. “That’s going to create opportunity on the office side here.”

Conway added that there’s opportunity for technology with Memphis’ medical scene for the logistics that goes with distribution.

“You guys need to begin to think of yourself as an Intellectual Capital, Energy and Education market for your office,” he said.

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 43 43 12,074
MORTGAGES 78 78 15,834
FORECLOSURE NOTICES 0 0 3,130
BUILDING PERMITS 0 0 28,832
BANKRUPTCIES 97 97 11,768
BUSINESS LICENSES 18 18 4,292
UTILITY CONNECTIONS 190 190 17,922
MARRIAGE LICENSES 43 43 3,711

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