Following the bloody recession and its brutal aftermath, one word has begun to creep back into the local industrial real estate lexicon: optimism.
Improved industrial activity has led to a dwindling vacancy rate, which dipped to 11.5 percent at the end of the first quarter, below the two-year low of 11.9 percent recorded at the end of 2012. Cushman & Wakefield/Commercial Advisors said in a first-quarter analysis that a trend to watch is tenants focusing more on smaller requirements, those less than 200,000 square feet.
(Daily News File/Lance Murphey)
“I wouldn’t say we’re out of the woods yet but there’s a bunch of positive momentum out there,” said Jim Mercer, executive vice president of brokerage services at CB Richard Ellis Memphis. “People are cautiously optimistic.
“It’s still slower than we hoped. But we clearly believe we have turned the corner.”
The signs of resurgence are there.
The Memphis industrial market recorded positive net absorption of 951,683 square feet during the first three months of the year, marking the fourth straight quarter of positive absorption, according to a first quarter industrial market review from CBRE.
For an example of the turnaround, take a look at last year’s first quarter, when empty space increased by 1.6 million square feet.
The improved activity has led to a dwindling vacancy rate, which dipped to 11.5 percent at the end of the first quarter, below the two-year low of 11.9 percent recorded at the end of 2012.
Wyatt Aiken, executive vice president of Cushman & Wakefield/Commercial Advisors LLC, said multiple reasons are fueling the optimism. For one, Aiken is no longer taking calls from people or institutions looking to get rid of industrial space.
“On the demand side, I haven’t had a call asking me to help someone get out of space,” Aiken said. “I haven’t got one of those calls in almost a year and that is good news.”
“All the calls and conversations we’re having with industrial clients is whether we need more space,” he said. “On the demand side, things are moving in the right direction.”
Momentum also is building on the supply side.
Industrial Developments International Inc. delivered a new building in DeSoto County, an 869,000-square-foot structure inside Crossroads Distribution Center. Earlier this year IDI officials said they would add two more structures inside the 475-acre industrial park, a 241,994-square-foot building to be complete in October and a 430,212-square-foot building that should be complete in December.
Panattoni Development Co. plans to build a 500,000-square-foot speculative facility, expandable to 1.5 million square feet, at Gateway Global Logistics Center, which straddles Fayette and Marshall counties.
“This is the first time since the crash we’ve seen two developers announce speculative construction,” Aiken said.
Cushman & Wakefield/Commercial Advisors said in a first quarter analysis that a trend to watch is tenants focusing more on smaller requirements, those less than 200,000 square feet, something IDI officials acknowledged when they announced their new speculative buildings.
“Tenants come in all shapes and sizes,” said Tim Moore, vice president of leasing for IDI Memphis, in a statement. “Crossroads Distribution Center has buildings suited for smaller and larger, bulk tenants and the addition of Buildings D and L provide additional options.”
Andy Cates, executive vice president at Colliers International Memphis, said the improving economy is leading smaller firms to expand.
“We’ve seen an uptick in the smaller tenants taking up space and we see that as a very positive sign for the Memphis market,” Cates said. “That means the smaller businesses are growing and that’s great news for everybody. The smaller spaces are starting to get full and I use that as a good barometer of what’s next for us.”
Mercer said he expects to see more investor speculation this year in the local market.
“The thing we’re seeing that is a little different now is the investors are back,” he said. “There’s a lot of investment money out there.”
Institutional investors remain bullish on Memphis and real estate experts expect to see more locals pump money into investments, said Johnny Lamberson, CBRE executive vice president of brokerage and investment properties.
“(Previously) there was no one local,” he said. “I think we’re going to see more private, local money this year.”