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VOL. 119 | NO. 3 | Wednesday, January 5, 2005

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Outlook Positive for Commercial Market

Outlook Positive for Commercial Market

Retail growth spurs real estate market heading into 2005


The Daily News

Following several years of post-9/11 uncertainty, the commercial real estate outlook for the Metro Memphis market looks much better entering 2005.

The improvement is mostly due to the retail sector, as several projects are scheduled to come online this year, including open-air shopping malls in Collierville and Southaven.

Thats what is going to be interesting to watch this year, because there is a bunch of stuff coming on in several different markets, said Joel Fulmer, senior vice president of industrial with Boyle Investment Co. and 2005 president of the Memphis Area Association of Realtors Commercial Council. Its going to be interesting to see how much of that space gets built and how much of it then gets filled out.

Large-scale retail. The Avenue Carriage Crossing, located at Houston Levee Road and Bill Morris Parkway in Collierville, will open in the fall. Stores in Southaven Towne Center in DeSoto County will begin opening in the fall, as well. A second project, DeSoto Pointe, is also being developed in Southaven with opening scheduled for 2006.

There are obviously a lot of deals that are in place that are teed up for 2005, said Scott Barton, vice president of retail for CB Richard Ellis. As a result, were going to see a lot more traffic around those areas. Youll see some things happening on the periphery of those. Any time a new development thats very sizable goes in, youll see some things around it.

Growing submarkets. Thats one trend Barton predicted will characterize 2005 the southern part of Collierville will begin to develop as a retail center, thanks to the 800,000-square-foot mall project. It just adds another trade area to the growing Collierville submarket.

Carriage Crossing, that opens up what you might call South Collierville, which basically in the past has been called a cow pasture, he said. There was really nothing there.

And to some extent in Southaven, with the development as far south as Church Road, there are three or four new developments that people are looking to do in Southaven that are essentially on the southern end of the trade area. As a result, youre going to see Southaven continue to shift southward. Years ago, Stateline was the main drag in Southaven. Its hard to imagine now, now that Goodman is built up just like a Poplar or Germantown Parkway. Its not going to go back to Stateline. Its just going to move farther south to Church.

In the city. Another trend on the horizon in 2005 is the fact that retailers are showing an interest in moving back into Memphis. That shift began in 2004 with projects such as the Midtown Home Depot, and it will continue with a couple of centers being developed by Loeb Properties, as well as a Chamberlain, McCreery & Rice retail center being built adjacent to a new Wal-Mart store going up in Whitehaven.

One thing weve noticed in 2004 is a surprising amount of redevelopment, particularly in the Midtown area, Barton said. I think those are going to be important elements for 2005. At the end of the day, we may end up seeing more developments like that since the ones weve seen in the last year have been so successful.

Office improving. The office outlook isnt quite as bright as that of retail, but its not going to be a bad year for the market, analysts said.

Im pretty optimistic that were going to have more activity in 05 than what weve been having, said Mark Halperin, executive vice president of office with Boyle. A lot of the sublease space that has been hanging over the market is gone. Its been absorbed by the general market.
Kelly Truitt, executive vice president of office with CB Richard Ellis, said the market will continue to improve.

I do think that we will see some more absorption, he said. Were already seeing absorption in the East market in the Class A properties from people moving from B to A. With the growth of the existing tenant base, we will see some overall improvement in the office market.

But there wont be much construction on the scene in 2005, at least not many large-scale projects.

Only if something is pre-leased, Halperin said. I think you might see some. You might see some speculative medical building, but I wouldnt think a lot.

Industrial still trailing. The industrial market seems to be positioned better than in years past, but it still lacks significant strength.

The warehouse market is going through what appears to be some fundamental changes, Fulmer said. There is still just a huge amount of good quality vacant space in that Southeast market. It seems like theres a consolidation and youre seeing a few more large deals, but were not seeing the numbers of 50,000- to 150,000-square-foot deals that we did in years past.

Its almost like saying, Gee guys, were going to let you quit banging your head against the wall quite as hard. Its still not going to be fun, but its not going to hurt as much as the last two years did.

The tax issue. A major obstacle the industrial market faces, at least in Shelby County, relates to property taxes.

Thirty-five percent of our entire rent is in property taxes, Fulmer said. Thats extraordinary and that has a lot of impact. The industrial market in Shelby County, the 150,000 to 200,000 square feet and below space, that stuff is going to be tremendously impacted by property taxes.

Fulmer said as long as the countys tax structure remains the same, its going to be difficult for Shelby County to get smaller projects, as many are heading south to DeSoto County.

We cant compete on that kind of basis, he said. It appears that all of the major merchant builders now have a land position in DeSoto County. They have land inventory and they have the ability to produce space when there is demand.


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