Memphis’ economy and commercial real estate industry is recovering, but not as fast as other places – like Nashville.
That was the message local professionals heard Tuesday, Dec. 4, at the Urban Land Institute Memphis’ 2013 Real Estate Outlook for the Mid-South.
“We haven’t seen rebound in our economy that would cause us to stand up and cheer,” said Dr. John Gnuschke, director of the Sparks Bureau of Business and Economic Research and co-director of the Center for Real Estate at the University of Memphis. “Memphis is a slow-growth market and we haven’t prospered as quickly or recovered as quickly as Nashville has.”
Unemployment rates for the Memphis area have come down, but are still 45,000 jobs from where they were at the peak. That’s 15,000 more jobs than FedEx Corp. employs locally.
“So you can see what kind of impact the recession had on us,” Gnuschke said. “We’re told repeatedly that things are getting great, things are getting great – well, they’re getting better. We’re seeing some success – the Electrolux plant and the others are some positive signs that we’re alive, but we’re ugly still.”
Gnuschke said when industry is recruited in Tennessee, it’s recruited from Nashville. It’s “the heart” of the state and it thrives before us with demographics, jobs, income growth and so on.
“Very shortly, you’ll see full employment for Nashville,” Gnuschke said. “We desperately need an initiative to make Memphis a more attractive place to live. High population growth means dynamic community, dynamic community means economic growth and prosperity for all of you.”
But Gnuschke touted the fact that Memphis was named among the world’s Top 20 must see places in 2013 by National Geographic, released last week. He said it speaks to how the city needs to look outside the Mid-South to find people who think the Memphis market is a great one.
“When I watch Home and Garden, I see the price of houses in Toronto – they’re terrible. The price is high, housing quality is low,” Gnuschke said. “But when you compare it to Memphis, the housing stock here is incredible. The prices are low and we need to market that housing stock across the country.”
When asked why Amazon, which has a presence in Nashville and Chattanooga, is not in Memphis, especially given FedEx’s headquarters here, Whitfield Hamilton, regional partner with Panattoni Development Co., didn’t have an answer.
“They’re a very secretive organization, they’re very forward, they know what they want and that’s what they go get,” Hamilton said. “We’ve actually proposed sites, put them in front of them, as we were looking at some other deals to say, ‘Here’s some very good opportunity.’ But so far, Memphis hasn’t been on the list that’s included 25 or 30 cities in the country and I don’t really have an answer why, given the logistics.”
On the whole, Hamilton’s theme on Memphis is that it’s the one market where the industrial is six months to a year and a half ahead of Nashville. That’s true for deal flow – Memphis recently beat Nashville for both Teleflex Inc. and Five Below’s more-than 500,000-square-foot leases – and also speculative construction.
“Memphis is right in line with other markets’ building spec – Pennsylvania, New Jersey, Miami, Houston, Dallas, Atlanta,” Hamilton said. “You’re going to see with IDI finishing up, they will do well with that. You’ve got Hillwood in Southaven in their park talking about spec, Prologis in their park in Olive Branch just down the street from IDI talking spec, and then us over in Marshall County next to the new intermodal and Norfolk Southern. All three of us are planning and talking, waiting to see when the right time to start is.”
On the office front, Memphis’ lease rates are fairly comparable to Nashville, but rental rates are flat, said Kelly Truitt, president of CB Richard Ellis Memphis.
“The Nashville market overall experienced some positive growth in absorption really until about the third quarter,” Truitt said. “We have seen a little positive absorption in the third quarter in Memphis. Unfortunately, that’s going to change in the fourth quarter.”
Truitt mirrored Gnuschke’s comments about the stagnant job market, reiterating the reality for many office brokers – expansion in the office market is driven solely by white-collar job growth. But he later added that the chance of municipalities implementing their own school systems could lead to them favoring development for tax revenue purposes.
“Before, they may have been somewhat conservative in their development desires for their market," Truitt said. "It may be loosening up in order to have more commercial development for a higher tax base."
The school system is something Gnuschke is “very concerned” about. He said Memphis is headed in the direction of legal issues and negative attention.
“The separate and unequal issues associated with civil rights and schooling has a long tradition in this part of the country,” Gnuschke said. “It’s not a piece of laundry we want to wash in a national arena and I think pretty shortly this becomes a major national focus. I’m concerned that it’s going to make Memphis in general a less attractive place to be because it’s controversy we don’t need at a time in which we’re trying to recover.”