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VOL. 119 | NO. 36 | Monday, February 21, 2005

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Industrial Market Looks for Improvement

Industrial Market Perks Up for 2005

Prospects seeking property in Shelby, DeSoto counties


The Daily News

Month after month, quarter after quarter saw the same story in the local industrial real estate market: flat and uninspiring. But if activity during late 2004 is any indication, the market should make strides toward recovery in 2005.

Strong finish. While no new buildings were delivered during the last two quarters of 2004, overall vacancy declined during the final three months of the year. Absorption was 1.2 million square feet during the fourth quarter, according to commercial real estate firm CB Richard Ellis.

And that number should only improve this year 3.4 million square feet is scheduled for delivery during the first half of 2005.

Based on some very good positive absorption in the fourth quarter last year, I would say we finished the year on a strong note, said Dan Wilkinson, a broker with Colliers, Wilkinson & Snowden. I really think 2005 is going to be a good year for both Memphis and for North Mississippi, as well. There are a lot of people building space, and there are a lot of major users out there who are looking for space right now who I think will make a decision and land somewhere.

Positive absorption. Year-end absorption for the Memphis market came in at 1.5 million square feet, according to a CBRE fourth quarter report. Overall vacancy stood at 18.3 percent.

The new space market continues to do well, said Joel Fulmer of Boyle Investment Co., president of the Memphis Area Association of Realtors Commercial Council. I understand there are a good number of people out there looking right now.

Michael Mullis, vice president of Farnsworth Investment Co., is encouraged by current conditions in the market.

It looks as though activity has certainly picked up, Mullis said. It started toward the end of last year with the end of that last quarter being pretty good. And it has continued to right now with several prospects in the market looking around for space. It seems as though the majority of that activity has been big-box, what I call bulk stuff, 250,000 square feet and bigger.

New prospects. There is a healthy number of prospective buyers in the market, said Wyatt Aiken, senior vice president of Commercial Advisors LLC.

There are a lot of users in the market right now looking for new facilities, Aiken said.

And thats a good first step, Mullis added.

I base it on activity and the number of deals we see getting done, and activity has certainly picked up, without question, he said. Will that equate to more leases being signed? I dont know, but it certainly is a healthy step in the right direction. If we dont have people looking, were certainly not going to have people signing. I look at it as the first step in the process.

While it seems a recovery has begun, some areas continue to struggle.

The Class B and C, second and third generation in the Southeast Memphis market is still very tough, Fulmer said. Theres still a whole lot of vacant space out there and rates are depressed. Thats not a real fun product to own right now if you have a vacant building.

DeSoto growth. One factor that will affect recovery of the industrial market in Shelby County is the growing attraction of North Mississippi.

DeSoto County has been targeted for much of the areas new development.

Because of our tax rate, Im not really sure what the answer to that is, Fulmer said. Its one of these things where we can identify the problem, but the cure is much more difficult. The city and county governments are going to have to do something on the operational side of the equation. They cant simply keep taxing real estate.

Dual market. There is room for new development in both counties, Wilkinson stressed.

Youre going to see some firms, some big firms possibly, leave Memphis and go to Mississippi, he said. But there seems to be also additional very strong, healthy growth within the Memphis market, so I dont think thats going to have a significant negative impact on us.

Mullis believes interest is still strong for Shelby County properties.

While DeSoto County made some good deals last year, I certainly think the number of deals being done in the market is still overwhelmingly done in Memphis and Shelby County, he said. I think DeSoto is a viable competitor without question. But when you analyze the full cost of operation, I think that the difference is not as great as what you hear it is. If it was the best deal, hands down the best deal going, why wouldnt they be making all the deals?

Northeast submarket. While its not a strong competitor in relation to the Southeast Shelby County and DeSoto County submarkets, Northeast Shelby County has experienced some recent activity. The areas 4.2 million square feet of rentable space is the smallest of the six submarkets, but it had the most favorable vacancy rate at 10.6 percent.

We dont really compete with that stuff up there, Mullis said. Its some good-looking stuff. Typically, those folks that want to be up there dont want to be in the Southeast part of town. They dont have a need to be by FedEx or the airport or the intermodal yards.


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