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VOL. 131 | NO. 31 | Friday, February 12, 2016

New Numbers: Memphis Industrial Market Breaks Records

By Madeline Faber

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The Memphis industrial sector had a banner year in 2015. According to year-end data from Cushman & Wakefield/Commercial Advisors, last year’s absorption level came in at 8.4 million square feet, 2 million square feet higher than 2006’s pre-recession levels and a record for the market.

2015 was a big year for the 1,500-acre Gateway Global Logistics Park in Fayette and Marshall counties. Developer Panattoni leased up two of the buildings and broke ground on a third.

(Daily News File/Andrew J. Breig)

Class A buildings accounted for 75 percent of the total absorption with 2015 seeing 18 major deals from Nike, Post, Electrolux and others. Historically, the market sees 10 to 13 Class A deals a year.

Brian Califf, executive vice president with NAI Saig Co., sees the Memphis industrial market’s fundamentals as driving the demand for new industrial users.

“Rental rates for industrial are still below national averages in comparable markets,” he said. “Factor that with Memphis being one of the strongest distribution points in the U.S. for industrial, along with having access to all major sources of transportation, and you create a strong environment for users across the U.S. to open up a facility here.”

Vacancy dipped below 10 percent for the first time in the market’s history to a low of 9.8 percent. Within the Memphis MSA, vacancy sits at 7.4 percent, according to data from CBRE Inc., which were released this week.

With vacancies steadily shrinking over the past few years and Class A space now sitting at 95 percent occupancy, the market is about to hit a construction wall. According to C&W/CA, there are five competing properties that could fit a user greater than 400,000 square feet.

“The availability of Class A space in Memphis continues to decrease since no one is building speculative buildings,” said Patrick Burke, senior vice president with CBRE. “A handful of new developers are tying up sites in north Mississippi to build spec and chase build to suits.”

There is currently 2.4 million square feet of industrial space under construction with most of the projects being speculative developments in DeSoto and Marshall counties.

Panattoni Development Corp.’s Gateway Global Logistics Park is one of the projects. Last year, Panattoni leased 554,000 square feet to Post in Building II, expanded the building by 61,500 square feet and is set to finish a second expansion of 61,000 square feet this quarter. It also broke ground on Building III with delivery scheduled for the third quarter.

“These (e-commerce) deals are often looking at multiple cities before they make a decision. Finding a building that works sometimes drives the location.”

–Patrick Burke

Last year, Hillwood Investment Properties broke ground on the Legacy Park development in Olive Branch. It will deliver an 800,838-square-foot warehouse and a 293,760-square-foot warehouse this quarter.

Coming online the same time is the latest development from IDI Gazeley, a 275,400-square-foot Building J at 1620 Stateline Road.

Still to come is a planned development, Prologis Park Desoto Building 2, which is 902,700 square feet in Olive Branch, according to data from CBRE.

With limited Class A options, build-to-suit activity will remain an option. The 406,080-square-foot build-to-suit space for AmerisourceBergen at IDI Gazeley’s Crossroads Distribution Center should be finished in the second quarter.

More spec construction is expected to be announced as asking rates are pushing upwards of $3 per square foot.

E-commerce is changing the real estate conversation. According to C&W/CA research, the U.S. third-party logistics industry is expected to grow by 6.4 percent through 2016. Around 25 percent of 2015’s Class A deals were related to 3PL activity, and that demand is expected to continue. “These (e-commerce) deals are often looking at multiple cities before they make a decision,” Burke said. “Finding a building that works sometimes drives the location.”

Demand is strong with 10 million square feet of bulk requirements seeking space in the market with requests from 10,000 square feet to 1.5 million square feet, according to CBRE.

Investment activity also picked up in Memphis last year. In 2015, more than 16.8 million square feet of industrial properties were traded. The market usually sees around 10 to 12 million square feet in a good year, according to C&W/CA.

PROPERTY SALES 57 280 1,209
MORTGAGES 55 244 916
BUILDING PERMITS 158 699 2,751