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VOL. 8 | NO. 50 | Saturday, December 5, 2015

Memphis, North Mississippi Competition Raises Questions

By Madeline Faber

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When leaders of the city-county Economic Development Growth Engine didn’t grant developers a $24 million tax abatement to build an industrial park on the site of the former Mall of Memphis, some saw it as more kindling for competition between the industrial markets of North Mississippi and Southeast Shelby County.

Panattoni Development Co. has broken ground on Building III in Gateway Global Logistics Center, which sprawls through Marshall County, Miss., and Fayette County, Tenn. 

(Memphis News/Andrew J. Breig)

The developers’ application stated that without a tax freeze, they would keep losing prospective tenants to North Mississippi because of “the predictability of incentives and the resulting lower operating costs.”

It’s not just rhetoric. Memphis has some significant challenges in competing against DeSoto and Marshall counties for industrial tenants, but some developers think there’s too much weight being placed on the competition aspect.

“There aren’t a lot of big distribution markets that truly compete with each other so closely,” said Hank Martin, vice president of NAI Saig Co. “In Memphis, you can make all three states compete against each other, and the buildings are only a few miles from each other. That’s a very unique situation we have in our market.”

Shelby County is doing well in terms of industrial recruitment, Martin added, as long as the companies don’t mind going into old buildings.

The Memphis area saw 11.1 percent vacancy at the end of the third quarter, the lowest level recorded in market history. But with limited opportunities to grow in the Memphis area, developers will keep turning to Mississippi.

Memphis hasn’t seen any new speculative industrial construction since 2007, while the area’s most active submarket, DeSoto County, has grown its Class A industrial offerings by 6 million square feet.

By the end of the year, 1.5 million square feet is expected to be delivered across DeSoto and Marshall counties.

The 1,500-acre Gateway Global Logistics Center, sprawling across both Marshall County and Fayette County, has had a busy year. Volvo Group opened a 1 million-square-foot distribution center in Building I, Post Consumer Brands signed a 677,160-square-foot lease in Building II and Panattoni Development Co. broke ground on the 554,040-square-foot Building III.

Martin said that Memphis’ lack of available land, complicated incentive process and higher property taxes deter developers from building in the area. Unlike Tennessee, Mississippi has a state income tax, so it can be more generous when granting property tax abatements.

To offset high property taxes, EDGE offers a payment-in-lieu-of-taxes incentive, but the program doesn’t apply to spec construction and is difficult to maneuver.

“You’ve got to simplify it, streamline it, make it less expensive, less convoluted. That’s one of those things that can get these investors back in,” said Brad Kornegay, president of asset services for Colliers International Memphis.

After the Mall of Memphis deal fell through, the EDGE board said it will revamp its PILOT process but still won’t make accommodations for spec construction. EDGE PILOTs are based on job creation, and as spec construction is built without a set tenant, it’s difficult to gauge how many jobs would be created as a result of the deal. Mississippi doesn’t give tax abatements to spec developers either.

Kornegay said that the city also needs to make infrastructure improvements in the southeast submarket to serve existing warehouses if it wants to attract additional industrial business.

While Memphis has some challenges to work through, having big businesses move in across the state line isn’t the most prominent one.

“I definitely think that a win for the region is a win for everybody,” said Andy Cates, CEO and president of brokerage services for Colliers International Memphis.

A broad picture of the MSA would combine the strengths of all competing counties and make the region that much more attractive to industrial companies. However, Martin said, it’s not easy to get multiple states to play ball together when they’re competing for tax revenue,

When companies are looking at moving to the Mid-South, they aren’t just hyper-focused on Memphis as part of Shelby County. They see the whole region, Cates said.

He added that employers and employees already view workplaces as having an interstate reach.

“You wouldn’t say that that a company in Olive Branch only employs people from Mississippi,” Cates said.

Martin said the solution lies in working together.

“If you can figure out a way for the communities to compete as one as opposed to three, I think all markets and all three states would do better,” said Martin. “I want Memphis to grow, but it has to be real growth. We can't just be stealing business from each other.”

PROPERTY SALES 36 154 6,546
MORTGAGES 34 94 4,129
BUILDING PERMITS 201 554 15,915
BANKRUPTCIES 43 126 3,396