VOL. 9 | NO. 19 | Saturday, May 7, 2016
EMPHASIS: Commercial Real Estate
Memphis MSA Industrial Sector Has A Strong First Quarter After Record 2015
By Madeline Faber
The Memphis MSA industrial sector had a strong first quarter after a record-breaking year in 2015.
Aerial shot of Gateway Global Logistics Building II being expanded while construction begins on Building III. The Memphis MSA industrial market is red hot. (Memphis News/Andrew Breig)
Last year saw a record absorption rate of 8.4 million square feet, which is 2 million square feet higher than 2006’s pre-recession levels.
The market continued to soar in the first three months of 2016. According to the latest quarterly report from Cushman & Wakefield/Commercial Advisors, more than 4 million square feet of leasing activity took place within the first quarter of 2016. Most of those leases went to new construction, with total absorption coming in at 1.7 million square feet.
“In the first 90 days, we signed over 4 million square feet in Class A deals. That almost surpassed the 5.6 million square feet in class A deals that we did all of last year,” said Patrick Walton, principal with C&W/CA. “So I think it’s a very strong rollover of deals that didn’t get done in 2015. It’s all about timing,” he added.
The biggest lease of the quarter came in at 1.5 million square feet, the largest single transaction in market history.
Tire & Battery Corporation signed the massive lease at Panattoni Development Co.’s Gateway Global Logistics Park, a sprawling 1,500 acre industrial park across Fayette and Marshall Counties. TBC will be leaving its 700,000-square-foot location in Southeast Memphis.
Fayette County has historically seen limited activity, and C&W/CA believe that TBC’s lease has kicked the Tennessee county off as a new submarket. Over 1.5 million square feet will be delivered this year in Fayette County, according to data from Colliers International.
Another notable lease went to Nike Inc. for a 700,000-square-foot warehouse in the Southeast submarket. Nike’s new location at the Summit Distribution Center brings its total footprint to 6 million.
Organic growth is driving the Memphis market with existing companies taking over the first quarter’s key transactions.
PFS Web signed a 275,400-square-foot lease in IDI Gazeley’s Stateline Business Park, and Menlo took over a 208,870-square-foot lease in Hillwood Investment’s Legacy Park development. Both Olive Branch warehouses were delivered in the first quarter.
“I think it’s good for Memphis that these big names are continuing to expand their footprint,” Walton said.
IDI Gazely also delivered a 408,000-square-foot building in the Crossroads Distribution Center in Olive Branch. Amerisource Bergen has completely leased the build-to-suit building.
“We've still got a lot of good activity on the new construction that's been built. It’s getting leased up pretty quick,” said Hank Martin, vice president with NAI Saig Co. “I think most people are strong on that Mississippi market as well as new builds when they come along.”
However, C&W/CA expects demand to slow with smaller pipeline of tenants seeking six to seven million square feet. Demand should pick up speed again in the third quarter, according to the report.
In the first quarter, Hillwood also completed a second building in the Legacy Park development. The 800,000-square-foot warehouse has 100 percent availability. The larger Legacy Park building is one of three existing options for users seeking more than 400,000-square-foot of space.
“That’ll be something interesting to watch--the Olive Branch development versus Marshall County and who’s going to win there,” Walton said.
With bulk buildings at 93 percent occupancy, class A rents are rising in a market where rental rates have been essentially flat for nearly a decade, according to data from C&W/CA.
Overall vacancy came in at 9.2 percent, the lowest point in the past five years and almost 4 percent lower than the market’s peak of 13.1 percent vacancy in 2013. Since 2013, the Memphis MSA has added more than 12 million square feet of inventory, and positive absorption has not lost the pace, according to data from Colliers International.
Bulk rates have risen 5 percent year-over-year, averaging $2.90 per square foot. They are expected to increase throughout 2016. In the Southeast submarket, Class A rents are at a five-year high and are approaching $3 per square foot, according to Colliers International.
Nearly 1.5 million square feet is currently under construction with all builds taking place in Fayette County. Panattoni is again expanding its Gateway Global Logistics Center by 1.5 million square feet. Colliers’ report states that the building is 100 percent leased and will be delivered in the third quarter. J S Designs Shop is constructing a 27,500-square-foot property off of Interstate-269.
Over 2.6 million square feet changed hands in sales transaction in the first quarter.
In the DeSoto submarket, Ares sold its 600,000-square-foot warehouse to Industrial Property Trust. The property went for $26 million.
Two properties sold in Southeast Shelby County. ProLogis sold its 1.6-million-square-foot Memphis Distribution Center. Exeter Property Group purchased the property for $70 million.
Huntington Industrial Partners sold 407,000-square-foot warehouse in the Outland Business Center. Faropoint Investments purchased the property for $13 million.