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VOL. 6 | NO. 34 | Saturday, August 17, 2013

Slight Second-Quarter Uptick Bolsters Commercial Real Estate

By Michael Waddell

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Despite posting lower numbers in some sectors for the second quarter, due primarily to the departures of Pinnacle Airlines and Technicolor, the local commercial real estate market is faring well in 2013.

Baker, Donelson, Bearman, Caldwell & Berkowitz law firm is renewing the lease and expanding its Downtown office.

(Memphis News/Andrew J. Breig)

“We have definitely seen a slight increase in activity,” said Anthony Lopes, one of the managing directors at Sperry Van Ness Investec Realty Services. “Overall we are in much better shape than a few years ago.”

Sperry Van Ness Investec Realty Services handles mostly office space, leasing nearly 1 million square feet of space. Lopes said business has been better this year than during 2011 and 2012, and the company saw the strongest interest during the quarter in the medical office sector.

“We’ve got some serious interest right now coming from medical users in Midtown and East Memphis,” said Lopes, who would like to see the city do more to woo nonmedical business. “Obviously the city does a great job attracting industrial users, but they don’t usually provide a lot of high-paying jobs. So now we need to figure out how to attract more white-collar users.”

The overall office vacancy rate jumped to nearly 29.6 percent in the second quarter from 15.6 percent in the first quarter, according to the mid-year Advisor Report from Cushman & Wakefield/Commercial Advisors. Pinnacle Airlines helped drive that number up when it vacated 170,000 square feet at One Commerce Square.

On a more positive note, the law firm Baker, Donelson, Bearman, Caldwell & Berkowitz PC announced the lease renewal and expansion of its Downtown office space in the First Tennessee Building to more than 107,000 square feet, and the state of Tennessee is in the market for as much as 300,000 square feet, including more than 100,000 square feet of space Downtown.

Despite the high-profile movement with CRE users Downtown, the strength of East Memphis office properties continues to buoy the market.

“A bright spot is Class A-plus space in East Memphis. It’s kind of a tale of two markets, with Class A-plus space in East Memphis and then everything else,” said Kemp Conrad, president of Cushman & Wakefield/Commercial Advisors Asset Services, who expects to see a wave of signings in the third and fourth quarters. “I think we might even see some new Class A buildings announced.”

One new building is already underway. Near the end of last year, International Paper announced plans to build a 235,000-square-foot building on its campus in the East Memphis market.

On the industrial side, Memphis suffered a rare downturn. Saddled by the Technicolor departure, the sector posted negative absorption of 515,273 square feet for the quarter, but for the year the market still shows positive absorption of 491,279 square feet. Vacancy rates rose to 15.1 percent, up from 14.9 percent in the first quarter of 2013.

“However, the investment sales market remains very strong, with institutional owners continuing to buy product in Memphis, as some owners here reallocate assets or take some chips off the table,” Conrad said.

In the past few weeks Conrad has seen activity pick up, with industrial space prospects now totaling more than 10 million square feet.

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