VOL. 131 | NO. 149 | Wednesday, July 27, 2016
Pinnacle Financial Anchor Tenant in Boyle's New Office Building
By Madeline Faber
Pinnacle Financial Partners will be an anchor tenant in Boyle Investment Co.’s long-awaited office building in Ridgeway Center.
The new $20 million, 155,000-square-foot building will bring Class A space to a starved office market. The office tower at 949 S. Shady Grove Road will be Memphis’ first substantial office project with speculative space in nearly 10 years.
Pinnacle Financial Partners has signed on to be the first tenant and will make the 35,000-square-foot space its Memphis headquarters. Plans also call for two remote drive-through banking lanes and a drive-up ATM. The banking office expects to open in 2017.
Boyle also plans to have one floor of underground parking with 80 spaces.
For the past five quarters, eyes have been on a 7-acre parcel at the corner of Shady Grove Road and Briarcrest Avenue, the last remaining parcel of vacant land in Boyle’s 206-acre Ridgeway Center office park.
“There's virtually no true Class A space (available) in our main submarket, so that's an issue in recruiting and retaining companies that want to be in nice space in the central area of the city,” said Kemp Conrad, principal of Cushman & Wakefield/Commercial Advisors.
Hnedak Bobo Group is the architect for the building and Linkous Construction is the contractor. When the building is completed, Boyle will own, lease and manage 15 buildings totaling 1.5 million square feet of office space in Ridgeway Center, an office park Boyle has cultivated since the early 1970s.
Mark Halperin, executive vice president at Boyle, said in April that he had one letter of intent signed and three others in negotiations for the six-story building. At the time, he said that most of the prospective tenants were Memphis companies that have outgrown their current headquarters. He said the building would rent for approximately $30 per square foot.
If Boyle pushes the envelope on asking rents upwards of $30, it could drive other properties to improve their amenities and increase rates.
“If they get what they want, I think there’s a potential that some of the rates in the nicer properties there potentially will go up,” said Hank Martin, vice president of NAI Saig Co. “You have to see how it shakes out once it’s done. If it fills up pretty quick and we still see a positive absorption in that market, then the rates, I would think, in these other buildings might go up if they push their amenities and push some of the benefits those buildings have.”
Over the past two years, available space in the East Class A submarket has decreased by more than 75 percent. According to first quarter data from CW/CA, there is less than 100,000 square feet available in the entire submarket with only two spaces available that could accommodate a user greater than 10,000 square feet.
The newest office buildings in Memphis are near the planned building at 949 S. Shady Grove. In 2008, Boyle developed a 155,000-square-foot building anchored by SunTrust Bank at 999 Shady Grove, also in the Ridgeway Center. Around the same time, Highwoods Properties developed the 149,000-square-foot Triad III building. Both buildings are in the highly desired East submarket along the Poplar corridor, and both buildings are almost fully occupied.
Highwoods’ Tower IV for International Paper Co., completed in 2015, is the market’s newest office building. It is fully leased by IP, so the building didn’t add to the inventory of Class A space in the market.
Conrad said the timing is right for a new speculative building as Boyle is entering a much more favorable market than in the middle of the Recession when the 999 Shady Grove building came online.
“Most people would agree that we're getting at some point late in this economic cycle so you don’t want to wait too long until things change again,” he said. “Overall, it's a better environment for a landlord to have confidence to build a building. There's just so much pent up demand and there's nowhere for users to go that are over 10,000 square feet, so it opens up not only opportunities for a bigger user, but also the smaller ones.”
Over the past eight years, Conrad said rates have grown with annual increases much more robustly than in the last cycle. With strong rates and several large users shopping the market, he said now is the best time for a new office building.
Ron Kastner, senior vice president with CBRE Inc., said that rents, occupancy and demand sustainability have returned to pre-Recession levels.
“Maybe some would say we’ve even surpassed that,” he added. “Back then, I would say Class A got down to 5 or 6 percent in the Poplar corridor. Now it’s more like 2 percent.”
Conrad added that Boyle’s announcement won’t necessarily spur other developers off the fence. There are only a handful of deals in the market that would be able to kick off a new building, and it isn’t likely that another developer will come out with a purely speculative building, he said.
“I definitely think there's going to be a major advantage to the person who comes out of the ground first,” he said.
Another possible potential developer is Highwoods. In May, vice president Steve Guinn said that he was working on a transaction for a parcel adjacent to International Place with a greater announcement to come by the end of 2016. He said rents for an office building on the 4.4-acre parcel would be around $32 to $33 per square foot. Highwoods currently commands the highest rents in the market at Crescent Center, which is $30.50 per square foot.
Kastner said that with prospective office users seeking a total of 1.2 million square feet in Memphis, there’s plenty of demand if Highwoods decides to start construction on a new office building.
He expects that Boyle will have the remaining 120,000 square feet of office space leased within the next 12 to 18 months.
“We could probably support about 300,000 to 500,000 more square feet of Class A office space in Memphis,” he said.