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VOL. 8 | NO. 20 | Saturday, May 9, 2015

Opportunities for ‘B’ Buildings in ‘A’ Markets

By Amos Maki

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Perched on floor 31 of the iconic Clark Tower office building in East Memphis, immigration attorney Eric Henton offers clients from around the Southeastern U.S. an incredible view of Memphis.

Richie Smithwick of Southern Amp Electric works on the lights in a Clark Tower suite undergoing renovation.

(Memphis News/Andrew J. Breig)

“The first thing my clients generally notice when they walk into my office is how beautiful, calm and green Memphis looks from above,” Henton said. “In many cases, my clients have never been up so high and it is fun to watch their reaction.”

Henton’s staff has doubled since he first inked a lease at Clark Tower on Poplar Avenue three years ago. Now, Henton is moving into a larger office on the same floor.

“We considered other areas of town, but nowhere provided all that East Memphis offers: a professional atmosphere, central location, ease of access and ample free parking,” Henton said.

As available Class A space in East Memphis shrinks, Class B buildings – like Clark Tower – in or around the city’s most desired office market are better positioned to capture tenants and secure rental rate growth, according to real estate officials and market data.

“The fact that the Clark Tower is Class B space in a Class A market is to our advantage,” Henton said.

“My clients do not demand Class A space but enjoy all the benefits of a Class A location,” he said. “We are able then to save money but maintain a professional image at the same time.”

The vacancy rate for Class A space in East Memphis has steadily declined from 10 percent at the end of 2013 to 5.2 percent in the first quarter, the lowest vacancy rate since 2008, according to Cushman & Wakefield/Commercial Advisors. Today, there are only one to two Class A buildings in the East Memphis market that can accommodate a user greater than 10,000 square feet and only a handful that can accommodate a user greater than 5,000 square feet.

Last year, 81,736 square feet of Class B space was absorbed in East Memphis, beating the 73,554 square feet of Class A space absorbed in 2014.

“While the topic of conversation appears to be the tightening of the East Memphis Class A market, there are very positive signs in the East Memphis Class B market as well,” said Phil Dagastino Jr., senior vice president at CW/CA. “We are seeing a good number of 25,000-square-foot-plus deals inquiring about space knowing that existing options may not be available in the next 12 to 18 months.”

David Osborn, the primary shareholder of Keller Williams Realty, bought the office building at 930 White Station Road last year, giving the real estate firm an East Memphis headquarters just a stone’s throw from busy Poplar corridor.

“We are in a great location, just off Poplar, with high car counts, great visibility and ease of access to all parts of town, without the cost of Class A space,” said Steve Young, broker with Keller Williams.

Over the past 12 months, Rosemont Realty spent roughly $600,000 renovating the interior and exterior of the 276,226-square-foot I-Bank Tower, a Class B building located at 5050 Poplar. The renovations, which were completed in March, and the current office environment are paying off. New leasing and expansions at the office tower have totaled 17,000 square feet and occupancy has stabilized at 83 percent.

“The timing was perfect because Class A was tightening, leasing activity was strong and companies were optimistic about 2015,” said Laura Taylor with Colliers International Memphis.

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