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VOL. 7 | NO. 19 | Saturday, May 3, 2014

Vote of Confidence

Brokers brimming with optimism in office, retail sectors

By Amos Maki

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After experiencing a strong fourth quarter in 2013, confidence in the Memphis office market remains high so far this year.

The Memphis office and retail markets showed signs of positive momentum in the first quarter that could produce positive results for the remainder of 2014.

(Memphis News/Andrew J. Breig)

First quarter leases signed outnumbered tenant move outs and the Memphis market ended the quarter with 54,989 square feet of absorption, according to CB Richard Ellis Memphis.

This was the third consecutive quarter the market has closed with positive absorption. The vacancy rate dipped to 13.8 percent, the first time in more than 10 years that the Memphis market’s total vacancy rate fell below 14 percent.

“That’s the third straight quarter with something good to say,” said Ron Kastner of CBRE Memphis. “I like the fact that the move-ins outnumbered the move-outs pretty healthily.”

Kastner said businesses are feeling more confident after emerging through the recession, which should mean continued good news for the Memphis market. Existing tenants, especially for those within the 3,000-square-foot to 5,000-square-foot range, are now more willing to enter into longer-term leases than before.

“Companies suffered through downsizing and whatever they had to do over the last five years and now there are more positive things underway,” Kastner said.

Despite the positive absorption, Kastner said a lot of new deals did not enter brokers’ pipeline during the first three months of the year but has started to change in April.

“I would say brokers did not start a lot of new stuff in the first quarter,” Kastner said. “It was a little slow in the first quarter. The current pipelines are just a little off right now. But where we are right now in April, I think that’s starting to change, and that’s typical this time of year.”

CBRE Memphis said it is currently tracking about 70 unique office users totaling about 875,000 square feet worth of office space for the Memphis area, a mix of small and large companies that are seeking new space or considering a lease renewal.

Strong leasing activity along the Poplar Avenue corridor in the East Memphis submarket last year has caused availability to tighten, resulting in a total vacancy rate of 3.6 percent for Class A space in the submarket in the first quarter.

International Paper’s tower is rising on its East Memphis campus.

(Memphis News/Andrew J. Breig)

That tightening should lead to opportunities for the owners of Class B properties in good locations, provided they make investments to improve the properties.

“I think over the next 12 months to 24 months Class B, or Class B-plus, will benefit from the razor-thin vacancy in Class A right now,” said Ron Riley of Colliers International Memphis.

The Memphis retail market got off to a somewhat slow start in the first quarter but that should improve later this year as deals that entered the pipeline come to fruition. The Memphis market closed the first quarter with positive absorption of 19,624 square feet, lowering the total vacancy rate to 12.8 percent, according to CBRE Memphis.

“It was really busy and a lot of stuff got working,” said Brian Whaley of CBRE Memphis. “Those things that we started working in the first quarter should come through later this year.”

LA Fitness is opening two new facilities in the Memphis area, one off of Tenn. 385 and the other along Interstate 40 and U.S. 64 in Lakeland. Construction of the Winchester and Tenn. 385 location, which will be 37,480 square feet, is underway on the land north of Winchester, adjacent to the Centennial Commons shopping center. The Lakeland location near U.S. 64 will be 40,000 square feet. Both stores will open later this year.

Marshalls will relocate from 25,000 square feet at Hickory Ridge Pavilion to 22,000 square feet at Centennial Commons shopping center, which is located at the southeast corner of Tenn. 385 and Winchester Road, during the second half of 2014. Target announced it will close its store in Centennial Place but activity in the area could mean that space could be absorbed quickly.

In Germantown, Kroger is expanding its store in Germantown Crossing at Germantown and Farmington roads, the same retail center where Huey’s opened its eighth location. Trademark Property Co. has begun construction on the redevelopment and expansion of Saddle Creek West in Germantown.

Texas-based retailer Conn’s will enter the Memphis market with a Conn’s HomePlus in 42,296 square feet at the Cross Creek Shopping Center at Riverdale and Tenn. 385 and Whaley said he expects several new retailers to enter the market this year.

“There are new tenants that aren’t in our market that are actively looking around,” Whaley said. “There’s a lot of new blood in the market and hopefully in the third and fourth quarter we’ll see that come through to fruition.”

PROPERTY SALES 76 133 1,342
MORTGAGES 83 131 1,047
BUILDING PERMITS 190 277 3,028