VOL. 129 | NO. 88 | Tuesday, May 6, 2014
FedEx Consolidates Office Space
By Amos Maki
For months, commercial real estate brokers have been watching closely for any signs that might hint at what FedEx Corp. and its subsidiaries will do with the hundreds of thousands of square feet of commercial space the Memphis-based company leases across the area.
The company may have shed some light on its future real estate plans by not renewing the sizable space FedEx Express leases at the Lenox Park Professional Building B.
FedEx spokesman Scott Fielder confirmed last week that FedEx Express would not renew the roughly 75,000 square feet it occupies on floors two through four in Building B at Lenox Park. The leases are set to expire at the end of June.
“What we’re doing is consolidating and moving people to the world headquarters,” said Fielder.
The Lenox Park Professional Buildings recently sold for a combined $6.1 million following a foreclosure.
FedEx is one of the Memphis area’s biggest employers and one of the city’s largest office tenants, and any possible decision to bring office functions back to the FedEx campus could have a profound impact on the overall Memphis office market, causing vacancy rates to surge and occupancy rates to experience a steep decline.
The Crescent Center is one of several Memphis properties where FedEx Corp. leases office space. The company is consolidating some of its space.
(Daily News File/Andrew J. Breig)
According to numbers compiled by commercial real estate brokers, FedEx and its subsidiaries lease around 328,896 square feet of office space – the equivalent of half the leasable space at Clark Tower – in the Memphis area. The 75,000 square feet FedEx Express is vacating represents nearly one-fourth of the company’s total leased space.
FedEx Corp., FedEx Express and FedEx Trade Networks lease space at well-known office buildings such as Crescent Center, Forum II, Renaissance Center, Thousand Oaks and Shady Grove.
“FedEx can certainly move the needle in the Memphis market, and the fact that they are not renewing at Lenox is indicative of a recurring theme we are seeing with the new normal economy,” said Ron Riley of Colliers International Memphis. “Companies continue to look for ways to gain greater efficiencies and drive the bottom line.”
Fielder couldn’t say what the Lenox Park decision could mean for the rest of the company’s leased space.
“I just know we’re consolidating,” Fielder said.
FedEx has been pursuing a company-wide reorganization. FedEx Express and FedEx Services have been downsizing through attrition, buyouts and layoffs as part of an effort to increase FedEx profits by $1.7 billion a year by the end of fiscal year 2016.
The recession and its aftermath left companies with vacant space because of staff reductions. At the same time, companies are now moving toward using more collaborative office space.
“As a result of the Great Recession and the overall impact it had on jobs in particular, companies were left with shadow space within their current footprint,” Riley said. “As leases roll from the 2004 to 2009 vintage, we will continue to see that while companies are starting to grow, they are doing it with less square footage per employee. The days of averaging 350 square feet per employee are behind us, and companies are mindful of this and the cost savings that can be achieved.”
FedEx isn’t the only major company facing real estate decisions that could have a profound effect on the Memphis market.
Raymond James Financial Inc. is exploring its real estate options.
The Florida-based financial services firm’s Downtown workforce has steadily dwindled from around 900 employees when it acquired Morgan Keegan from Regions Financial Corp. to roughly 600 at the beginning of the year.
Raymond James, which leases 242,000 square feet at the Downtown tower, has engaged corporate real estate and management firm DTZ to sublease space the company has vacated or will vacate, and real estate sources have said Raymond James representatives have held discussions with local real estate executives about the company’s future.
Riley said some brokers are keeping a close eye on the lease terms of several companies for a variety of reasons.
“Currently, Colliers is tracking major companies whose leases are rolling over in the next 12 to 24 months and what impact they could have on the building they are in and the overall market,” Riley said. “When you couple this with the fact that loans are continuing to mature from the pre-recession vintage, there will be buildings that will be impacted.”