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VOL. 127 | NO. 64 | Monday, April 2, 2012

Memphis Advantage

Industrial sector weathers economy thanks to city’s logistics brawn

By Sarah Baker

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As the industrial market approaches the end of the first quarter, a handful of deals have local brokers encouraged that the city’s bread-and-butter sector is poised for recovery.

Himanshu Varma, center, is CEO of Cordova Safety, which was recently listed on an Inc. Magazine list of the most rapidly growing companies in the country. The company is filling out the old Cleo Wrap property.  

(Photo: Lance Murphey)

Recent notable industrial leasing transactions – all of which occurred in Class A bulk warehouses – include Trane U.S. Inc.’s 625,000-square-foot lease in Chickasaw Distribution Center; Kimberly Clark Corp.’s 556,000-square-foot lease in Airways Distribution Center; and Impact Innovations’ 275,000-square-foot space at Southridge Corporate Park.

All of these leases contributed to positive absorption of more than 1.7 million square feet in 2011, even with Cleo Inc.’s move-out last fall vacating 1 million square. Leasing activity also bumped vacancy rates down to 15 percent at the end of the year compared to 15.3 percent at the end of 2010.

Sparing any more big plant closes or move-outs, vacancies will continue to trend downward, said Andy Cates, executive vice president of brokerage services for Colliers International Memphis. That in turn will cause rental rates to inch up, especially for users seeking 200,000 feet and more.

“If I was looking at a crystal ball into the end of this 2012, I believe you will see a continual trend in the vacancy rate getting smaller,” Cates said. “As vacancies get tighter, we will see an increase – a slight increase, but an increase – in rental rates and hopefully, landlords will be able to take advantage of a better market that they haven’t been able to take advantage of in a long time.”

But perhaps one of the best signs that the market is experiencing real recovery is development. It began again last year with build-to-suit projects for McKesson Corp. (645,000 feet), Anda Pharmaceuticals (234,660) and Schulz Xtruded Products (202,100).

The momentum continued with the recent announcement that Milwaukee Electric Tool Corp. will add 600,000 square feet to its local portfolio in a new building that to be developed by Industrial Developments International in its Crossroads Distribution Center in Olive Branch.

What’s more, Atlanta-based IDI plans to build two separate speculative buildings in the master-planned, 475-acre business park, marking the first spec construction since 2008.

“It’s all about timing,” said Jon Albright, broker with Sperry Van Ness/Investec Realty Services. “When do we come out of this cycle, when not? I think the good news for Memphis and Shelby County is there hasn’t been any unbridled, reckless development the last several years. Everybody’s been working on how to fill up their buildings. Most of the developers and owners that have survived through the last five years are fairly conservative.”

Carmen Hernandez uses an imprinting machine to brand safety gloves sold by Cordova Safety. The company, which started in a Cordova garage by CEO Himanshu Varma, just signed a lease to expand its space at the Defense Depot. 

(Photo: Lance Murphey)

While sustained recovery is yet to be seen, there are other signs of activity that indicate positive industrial strength on the horizon. For instance, a New Jersey-based REIT recently acquired Anda’s Olive Branch facility Crossroads Distribution Center from IDI for $16.2 million.

And Varma Family LP – an entity related to Memphis-based Cordova Safety Products – has bought two warehouses on Viscount Avenue toppling the 1 million square feet formerly occupied by Cleo in Airport Industrial Park Section A.

Building on last year’s investment activity with deals involving Memphis Defense Depot, Diamond Comics, 4480 Swinnea Road and Trinity Ridge Business Center, Memphis in many ways is back on the radar screen for large institutions seeking investment properties.

Case in point is South Carolina-based Johnson Development Associates Inc., which plans to turn the vacant Mall of Memphis site at Interstate 240 and Perkins Road into an industrial park of three office/warehouse and distribution buildings with loading docks spanning about 1 million square feet.

The plan, passed by Memphis City Council Tuesday, March 20, will likely entail build-to-suit activity rather than spec, said Jeb Fields, vice president with Cushman & Wakefield/Commercial Advisors LLC who represented Johnson Development. Regardless, it speaks volumes about the city’s centralized location for supply chain clients who need proximity to assets like the FedEx Super Hub at Memphis International Airport, ample interstate access and the intermodal yards of five Class I railroads.

“Memphis’ logistics capabilities are tried and true and developers recognize that,” Fields said. “Brokers that I’ve talked to in other markets … see that happening here and think, ‘Wow, that’s a pretty strong statement about what Memphis has to offer.’ We’ll always be in the running for distribution centers and companies that are looking to take advantage of those advantages that Memphis offers.”

MORTGAGES 0 79 1,199
BUILDING PERMITS 146 146 2,571