All signs are pointing toward a strong year for the Memphis-area industrial market.

The Memphis market closed the first quarter with 897,829 square feet of absorption and the total vacancy rate for the Memphis market – 10.8 percent - is the lowest the market has experienced in 14 years, according to CB Richard Ellis Memphis.

“We haven’t seen the vacancy this low in years and I think it’s a testimony to us being in a recovery,” said Jim Mercer of CBRE Memphis. “Markets have come back, there’s growth, there’s pent-up demand for space. Clearly we’re on the upswing and through this year and into 2015 we’re looking for real positive absorption. We’re pretty upbeat.”

Continuing a trend that emerged over the last decade, most of the industrial activity occurred outside of the city of Memphis, particularly DeSoto County, where industrial developers and their tenants have flocked because of the availability of space, low tax rates, simple incentives process and the area’s business-friendly reputation.

The first quarter’s positive absorption numbers were largely due to the delivery of the 541,980-square-foot build-to-suit for Home Décor/Jimco Lamps’ at Hillwood Investment Properties’ DeSoto Trade Center.

Homer Robertson, left, and Taurean Green move steel parts at River City Steel.

(Memphis News File/Lance Murphey)

DeSoto County recorded 495,866 square feet of absorption in the first quarter. The vacancy rate in Memphis’ most desired submarket, the Southeast submarket around Memphis International Airport, was 12.8 percent, above the market-wide vacancy rate of 10.8 percent and De Soto County’s vacancy rate of 4.5 percent.

“I think it’s really a tale of two cities if you will,” said Kemp Conrad, principal with Commercial Advisors/Cushman & Wakefield. “What’s dropped the rates so low is what’s going on down south, the North Mississippi submarket.”

“While (the activity in North Mississippi) is good from an overall market standpoint, people should be asking why the vacancy rate is so high in Memphis proper,” Conrad said. “It’s because of the high tax rate and our incentives process, which has more red tape than ever. It’s driving the bigger users down to North Mississippi and now to Fayette County, Tenn.”

In development news, Industrial Developments International is building an 860,000-square-foot building at Crossroads Distribution Center and Panattoni Development Co. is expected to complete a 554,000-square-foot building at Gateway Global Logistics Center, which straddles Fayette County and Marshall County, Miss.

While the big-box developers and users will probably continue to flock to areas outside of Memphis, smaller users should find the availability of space and lease rates, which landlords reduced during and after the recession, inside the city’s limits attractive.

During the first quarter, 20 deals – ranging from 2,400 square feet to 200,000 square feet – were signed in the Southeast Memphis submarket, pointing to healthy demand for smaller blocks of space. Mercer also said the Memphis market experienced strong activity in Class B building for spaces between 20,000 square feet and 110,000 square feet.

“Memphis is a regional hub and so I think any growth is better than no growth,” Mercer said. “The big box, yes, that’s going to be an issue for Memphis. I think we’ll continue to see the big boxes go elsewhere but the smaller users will continue to find Memphis attractive because the product is there, the infrastructure is there.”

The Memphis market entered 2014 after coming off one of its strongest years since the recession tightened its grip on the economy.

The Memphis industrial market remained in the black in 2013 with year-end net absorption of 3.2 million square feet, according to Cushman & Wakefield/Commercial Advisors.

During 2013, construction deliveries totaled more than 2.8 million square feet, which is about 1.2 million square feet more than 2012 and the largest year-end delivery total since 2007, according to CBRE Memphis.

“Memphis is still a great place to distribute out of,” Mercer said. “We’ve got more speculative development going on and I think you’ll continue to see people consider Memphis strongly for distribution reasons.”