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VOL. 126 | NO. 45 | Monday, March 7, 2011

New Plants Bode Well for Industrial Sector

By Sarah Baker

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Although the overall commercial real estate market is soft, Memphis’ industrial sector appears to be gathering more steam than any other category.

With the arrival of such large projects like the Electrolux and Mitsubishi plants and Norfolk Southern Corp.’s new Fayette County intermodal yard, industry professionals hope ancillary business will bolster the industrial market by sparking new development, attracting new investors and enhancing the area’s economy.

“Electrolux and Mitsubishi are huge for Memphis – it’s all about creating new jobs here,” said Mark Jenkins, executive vice president of Commercial Alliance Management LLC. “But more importantly, it demonstrates that in a global economy we can compete and win manufacturing business. Manufacturing jobs typically require a higher level of skill sets, technology and pay higher wages.”

The numbers have already shown improvement. With 268,500 square feet of positive absorption in the fourth quarter, Memphis’ industrial market posted more than 2 million square feet of net absorption in 2010, according to CB Richard Ellis Memphis’ 4Q MarketView report.

This represents a turnaround of about 3 million square feet compared to 2009 when net absorption was about 1 million square feet of negative absorption.

“Memphis in its heyday was probably 5 or 6 million (square feet) absorption, so for last year to be a 3 million swing, that’s pretty good,” said Jim Mercer, CBRE executive vice president of industrial brokerage services. “This year with the announcements, we’re encouraged.”

Despite the improved market activity in 2010, average asking lease rates dropped by $0.15 to $2.49 per square foot. But as new companies become drivers for additional jobs via vendors, suppliers and customers, brokers expect increased occupancy and corresponding upward rental rates.

The recently announced projects are impressive, to say the least.

Mitsubishi’s plans for a $200 million, 350,000-square-foot transformer manufacturing plant on 100 acres in Belz Enterprises Inc.’s Rivergate Industrial Park will open with 90 employees, the majority of which will be local. By 2013, jobs are expected to increase to 275 positions.

And Swedish manufacturer Electrolux will build a 750,000-square-foot facility at Frank C. Pidgeon Industrial Park, including a 250,000-square-foot stamping plant and a 60,000-square-foot office component. Besides the initial 650 acres of the southern supply site, there is also room on the western side near the river for the company’s expansion.

But Electrolux’s relocation is expected to have an immensely positive ripple effect extending well beyond the $47 million annual direct-employment benefit and the one-time impact of plant construction. Electrolux is not only encouraging Canadian suppliers to relocate here, but it’s also likely that the majority of the initial 1,250 jobs will be given to Memphians.

“I’ve worked with a lot of companies over the years and they are very adamant about hiring local, hiring minority companies when possible,” said Mark Herbison, senior vice president of economic development at the Greater Memphis Chamber. “They’re going to have a team on the ground here, they’re not going to do this work out of another place.”

Meanwhile, Mercer has had inquiries from several of CBRE’s Canadian offices.

“Electrolux – a periscope themselves – is saying, ‘Tell me about Memphis,’” Mercer said. “I think we’ll see some more of that.”

Mercer and his team are also working with a few third-party logistics firms in search of 400,000 feet or so and an out-of-town group in need of a couple hundred acres with rail and river access.

“We’ve never had manufacturing announcements; it’s always FedEx or intermodal,” Mercer said. “Now that we’ve got some manufacturing, some of the medical device work, I’m hopeful that we’ll have some opportunities that we haven’t had in the past.”

But the bulk of the Chamber’s deals “that are close” are manufacturing rather than office projects, Herbison said. There are even projects more than four years in the making that may be coming to fruition in the next few months.

“Memphis has fared well during the really bad economy as a place that has very low cost, very good infrastructure, very good location and it’s a very inexpensive place to do consolidations – you’ve seen Riviana (Foods), Nike, a lot of companies consolidate their operations here over the last few years,” Herbison said. “I think we’re going to see other successes from outside over the next months and quarters that are going to be announcing positive wins for the city.”

Opportunities for other large projects could abound on the large swaths of vacant land surrounding the intermodal facility that Norfolk Southern is building in Fayette County.

Intermodal yards, where cargo containers are transferred between trucks and trains, tend to attract distribution centers and manufacturing plants, both of which would also benefit from access to nearby Interstate 269.

Although the operation does not yet have a rail line in place for suppliers to access, it’s clear that this $112 million project is on the verge of creating even more momentum for the local industrial sector.

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