VOL. 132 | NO. 79 | Thursday, April 20, 2017
Memphis Office Market Off to Good Start
By Patrick Lantrip
Though small to mid-sized leases comprised the majority of leasing activity, the Memphis area office market got off to a healthy start in 2017, according to Cushman & Wakefield/Commercial Advisors’ first quarter Marketbeat report.
New construction projects like TraVure are expected to provide much-needed additional space to the highly competitive East submarket.
There was 160,000 square feet of leasing activity recorded in the first quarter, with most of the activity located in East, 385 Corridor, Airport, and Downtown submarkets.
Though only three deals over 10,000 square feet were recorded, vacancy rates dropped 0.1 percent and rental asking rates dropped 1.4 percent year over year.
“Tightening vacancy rates and construction activity indicate that 2017 should shape up to be a solid year for the Memphis office market,” the report read in part. “An impressive 700,000 square feet of new inventory is anticipated to be delivered by year-end alone, rivaling the 772,000 square feet added to the market over the last decade.”
Sedgwick Claims Management Services’ first quarter announcement to consolidate operations and keep its corporate headquarters in Memphis continued the trend of large companies choosing to remain in the area despite competitive offers from other cities.
In February, Sedgwick CMS was awarded a $10.4 million tax abatement by the Economic Development Growth Engine for Memphis and Shelby County, enabling the company to invest $33.5 million in capital, retain 865 jobs and create 130 jobs with an average weighted base salary of $68,872 excluding benefits.
Sedgwick will now consolidate its operations at 1100 Ridgeway Loop Blvd. and 2620 Thousand Oaks Blvd. into one 245,808-square-foot facility at 8155 T&B Blvd. – the current headquarters of electrical component manufacturing company Thomas & Betts Corp, which is now scouting the market for a new location.
“With space available at Sedgwick facilities in Atlanta, Chicago, Columbus, Dallas, Los Angeles and Portland, we know the firm had a number of low-cost options to consider,” EDGE president and CEO Reid Dulberger said at the time. “Retaining and growing Sedgwick’s headquarters in Memphis is testimony to the quality of their local staff, our community’s strong business infrastructure, and our ability to compete successfully for leading companies.”
The risk management firm joins the growing list of other corporations, such as ServiceMaster Global Holdings, MAA, LEDIC Realty Co. and Orgill Inc., that have all made similar decisions in recent years.
“Collectively, these companies’ relocations are the catalyst behind approximately $120 million in real property investment consisting of nearly 815,000 square feet of space,” the CW/CA report noted. “The projects will have a major impact on the submarkets in which they are located; ServiceMaster’s move to Downtown, for example, will activate a building that has been vacant for five years.”
East Submarket Remains Tight
At 3.8 percent, the East Class A submarket recorded the lowest direct vacancy rate ever. The direct asking rates for Class A properties in the submarket average $27.47 per square foot, but rose as high as $30 per square foot in some locations.
According to the report, there are currently no buildings in the submarket that could accommodate a user seeking more than 20,000 square feet of contiguous space, and only two that would suit a user seeking 10,000 square feet, until the $43.5 million, 10-acre TraVure project, which will consist of two hotels, a parking garage, restaurants, retail and roughly 145,000 square feet of Class A office space, is completed.
Apartment real estate investment trust MAA will occupy 83,265 square feet of the TraVure office building as its headquarters.
The project is expected to wrap up sometime in late 2017 or early 2018.
The tight Class A market, in turn, had a ripple effect on Class B properties, with direct vacancy rates falling to 16.8 percent from a peak of nearly 22 percent in third quarter 2013.