The upswing in the industrial real estate sector that started in 2012 and gained momentum in 2013 continued in 2014 and the Memphis market, fueled by several large transactions late in the year, should top 2013's level of around 3.2 million square feet of absorption.

Target will turn this industrial building into an online fulfillment center that will employ hundreds of people, one of the largest deals of the year.

(Submitted Photo)

Net absorption for the third quarter was 904,499 square feet – the fifth consecutive quarter for positive net absorption – and the vacancy rate dipped to 10.1 percent, according to CB Richard Ellis Memphis.

Through September, the Memphis market recorded just over 2.7 million square feet of absorption and several transactions should push the Memphis market past the 2013 absorption total and could drive the overall vacancy rate below 10 percent.

“I think 2014 shaped up to be a very positive year,” said Jim Mercer, executive vice president of CBRE Memphis in November. “I don’t know where we will end up for the end of the year, several things will factor into that, but I think we can finish the year above 2013’s) totals.”

Smaller deals and transactions for Class B space are helping lift the overall industrial market, especially in Memphis, which has more of that product type.

Through September, leasing activity for Class B buildings was 6.7 million square feet, up 26 percent from 2013, according to Cushman & Wakefield/ Commercial Advisors. During the third quarter, all but two lease transactions were requirements less than 200,000 square feet. The average lease transaction in the quarter was 60,000 square feet and Class B buildings made up 43 percent of the total transactions in the quarter and 46 percent for the year through September.

“What surprised me about (2014) was the level of activity on the smaller range of the scale,” said Larry Jensen, president and CEO of Cushman & Wakefield/ Commercial Advisors, in December. “We really saw a lot of activity there.”

Big box developers continued to target Northwest Mississippi in 2014.

No new speculative industrial building has been built in Memphis since 2008 and deliveries and construction continue in DeSoto and Marshall counties.

Industrial Developments International delivered an 861,252-square-foot building at Crossroads Distribution Center and Panattoni Development Co. broke ground on a 554,000-square-foot building, which is expandable to 1.1 million square feet, at Gateway Global Logistics Center.

In 2014, Hillwood Investment Properties broke ground on Legacy Park, a 266-acre, $165 million distribution and business park on the south side of Goodman Road, just east of Hacks Cross Road near Polk Lane.

Hillwood will launch two buildings, a 294,000-square-foot building suitable for one to four tenants and a 798,000-square-foot building suitable for one to two tenants, which allows Hillwood to capture a broad range of tenants.

While the number of smaller deals increased in 2014, there were still several important large leases.

Asics America Corp. added 342,144 square feet to its central footwear and apparel distribution center inside the Chickasaw Trail Industrial Park, pushing its total to 855,144 square feet.

In May, Roxul Inc., a Danish maker of stone or rock wool insulation, broke ground on a $160 million, 600,000-square-foot production facility.

Volvo is leasing 1 million square feet for its new parts distribution center in Panattoni’s Gateway Global Logistics Center.

One of the largest projects to hit Memphis in 2014 arrived in December, when retail giant Target confirmed plans to open a $52 million online fulfillment center in Southeast Memphis that will employ 462 people. Target will lease the 900,000-square-foot building at 5461 Davidson Road in Southeast Memphis for the online fulfillment center.

In another major development, Cummins Inc. will remain in Memphis and expand.

Cummins plans on expanding its current distribution operations into a 400,000-square-foot building at 5800 Challenge Drive, which is just across the street from the existing Cummins distribution facility, 4155 Quest Way, and is currently occupied by Stein World. Cummins will retain 897 local jobs and create 70 new jobs.

Investors, attracted to what they considered undervalued assets, remained active in the Memphis market in 2014.

Exeter Property Group acquired four Memphis facilities as part of a broader 4.4 million square-foot, $132 million portfolio transaction with special service LNR Property LLC.

The four Memphis buildings included in the sale are the 625,000-square-foot building at 5200 Transportation Drive occupied 100 percent by Trane, the 550,000-square-foot building at 6005 Freeport occupied partially by Kuehne & Nagel, the 600,000-square-foot building at 3399 E. Raines Road occupied 100 percent by Philips Electronics North America and the 337,655-square-foot building at 4550 Swinnea Drive occupied partially by Ingram Micro.

Canadian real estate firm Olymbec USA continued snatching up Memphis properties, a spree that began in 2013.

Olymbec USA, an entity of Montreal-based Olymbec Corporate Group, bought the 336,000-square-foot, Class B industrial facility 4219 Air Trans Road from Memphis Air Trans LP, an affiliate of Chicago-based HSA Commercial Real Estate. In December, Olymbec reached a deal to buy the 233,000-square-foot industrial building at 611 Winchester Road from New York-based Loebox Co. LLC.