Class A office space in East Memphis reigns supreme, which should continue to drive up rental rates, while industrial developers are ramping up activity outside the city of Memphis.
Those trends and others in commercial real estate will be the subject of discussion Thursday, Nov. 7, during the 2013 Commercial Real Estate Review & Forecast, one of six seminars in The Daily News’ 2013 Seminar Series.
The seminar, which will be held from 3 p.m. to 5 p.m. at the Memphis Brooks Museum of Art, will feature an overview of local and national commercial real estate trends in the office, industrial, retail and multifamily sectors.
The panelists are Brad Kornegay, president of Colliers International Memphis’ asset service division; Wyatt Aiken, executive vice president and chief operating officer of Commercial Advisors/Cushman & Wakefield; Blake Pera, executive vice president of CBRE Memphis’ multifamily division; and Jason Polley, managing leasing director of Stonecrest Investments LLC.
Each broker will discuss how their respective sectors have fared so far this year and what can be expected in 2014.
New industrial development – all of it outside the city of Memphis – has been on the upswing, a trend that shows no signs of slowing down as developers continue to target North Mississippi.
“That trend has continued into this year and we will see more development in DeSoto County,” Kornegay said. “There’s just a ton of momentum that continues to build in North Mississippi.”
This year, IDI launched an expansion of the 478-acre Crossroads Distribution Center with two new speculative buildings, the 241,000-square-foot Crossroads L building and the 430,212-square-foot Crossroads D building.
Hillwood Investment Properties announced plans for a 514,980-square-foot building at DeSoto Trade Center, and Panattoni Development Co. is building a 554,000-square-foot speculative warehouse in the Marshall County, Miss.-portion of the 1,500-acre Gateway Global Logistics Center industrial development.
In industrial leasing, the departure of Technicolor led the industrial sector to post negative absorption of 515,273 square feet in the second quarter, but through the first half of the year, the market recorded positive absorption of 491,279 square feet.
The local office sector is showing signs of breaking free from the chains of the economic downturn and the East Memphis submarket, long the dominant submarket, should see strong activity through the end of the year, Aiken said.
“We’ve seen modest activity in the submarket in the first half of the year but we expect a really good second half in East Memphis so I think very bright days are ahead,” he said.
As supply tightens in the highly coveted submarket, real and quoted rental rates should increase.
“There are quoted rental rates and real rental rates, the difference being what concessions landlords will give,” Aiken said. “Quoted rental rates have remained steady the last few years but real rental rates are increasing and as we see more leasing activity, quoted rental rates will increase.”
The overall office vacancy rate for the Memphis market jumped to nearly 29.6 percent in the second quarter from 15.6 percent in the first quarter, according to the mid-year report from Commercial Advisors/Cushman & Wakefield. That increase was driven mainly by Pinnacle Airlines vacating 170,000 square feet at One Commerce Square Downtown. However, the state of Tennessee, which is vacating the Donnelley J. Hill State Office Building, signed a 15-year lease for 104,673 square feet at the skyscraper at 40 N Main St.
Arlington-based Wright Medical plans on relocating its headquarters to East Memphis. In August, the company won approval for a 15-year tax freeze to allow the company to retain 225 jobs, add 35 new jobs and invest $10.6 million into a new headquarters at 1023 Cherry Road.
And Highwoods Properties Inc. is building an office tower for International Paper adjacent to the company’s existing office campus.
“There is local growth,” Aiken said. “You’ve got Wright Medical moving to Memphis and growing and International Paper is growing. We will see the occasional relocation from out of town, but for the most part it’s going to be modest organic, indigenous growth.”
Looking forward, tenants may turn to other submarkets, such as the Tenn. 385 corridor, for their office needs as occupancy and rental rates rise in East Memphis.
“East Memphis is our dominant office market and will be so for the next decade or two,” Aiken said. “But there are some really great values in the 385 corridor right now and I think we may see some tenants relocate to that corridor from other submarkets.”