VOL. 132 | NO. 36 | Monday, February 20, 2017
Sector-by-Sector Highlights of the Commercial Property Forecast Summit
By Patrick Lantrip
Many of the area’s best and brightest commercial real estate minds were on hand for the Memphis Area Association of Realtor’s Annual Commercial Property Forecast Summit at the Halloran Centre for Performance Thursday afternoon.
Industry-specific economic overviews and market predictions were given by a number of local speakers specializing in industrial, office, hotels, retail, multifamily and land, which was capped off by a Mid-South market overview by Cushman Wakefield | Commercial Advisors’ Larry Jensen and remarks by keynote speaker, Mark Vitner, a senior economist with Wells Fargo Commercial.
Scott Pahlow with Newmark Grubb Knight Frank said it really dawned on him just how good 2106 was in the industrial market when he was preparing data for his presentation.
“We’re at a point now where I can’t remember a time where our fundamentals are so solid and the trends are headed in the right directions” he said.
Highlights: Historic low vacancy rates, demand keeping pace with new construction, the pre-leasing of speculative buildings, and a resurgence of the Class B market are powering momentum in the industrial market.
Forecast: Vacancy rates will remain low, absorption will remain strong, strong investor demand will keep downward pressure on Cap rates.
He said it: “What it tells us is that small business is back, there is confidence in the economy again, they’re investing, they’re leasing space, and they’re hiring people,” Pahlow said of the resurging Class B market.
During his office market overview, CBRE’s Gray Fiser said that many of the large deals that defined last year, such as ServiceMaster and Pinnacle Bank, will begin to bear fruit in the upcoming year.
“2016 was about planting seeds, 2017 is about harvesting the seeds that we planted in 2016,” Fiser said.
Highlights: Among the most ambitious projects are ServiceMaster’s conversion of the former Peabody Place mall into its corporate headquarters; the conversion of the former Sears Tower into the mixed-use Crosstown Concourse; Orgill Inc.’s new 121,000-square-foot Collierville headquarters; and Gill Properties’ nearly 150,000-square-foot TraVure mixed-use project in Germantown that will be anchored by office tenant MAA.
Forecast: Resurgence in the Downtown office submarket, Crosstown exponentially expands Midtown office space, and increased density in the office market overall.
He said it: “You have large companies that are moving back into urban cores, just so that they can gain an advantage in their hiring,” Fiser said of the Downtown office submarket.
Chuck Pinkowski of Pinkowski & Co. said that when it comes to attracting more business to the Memphis Cook Convention Center, there is a shortage of large-scale hotels. While the smaller boutique hotels are no doubt important pieces, companies prefer to house everyone under one roof when coming to town.
“We’re a city of small hotels,” Pinkowski said. “We need bigger, full-service hotels.”
Highlights: 10.5 million visitors annually, average visitor spends $340 to $390 per day, tourism generates $150 million in state and local taxes.
Forecast: Cautious optimism, renovation is key, keep calm and stay the course.
He said it: “Memphis has over 10 million visitors on an annual basis, spending over 3.2 billion a year,” Pinkowski said.
CBRE’s Brian Whaley said the most successful retailers right now are the ones who have symbiotic relationship with e-commerce and social media. However, a high rate of returns continues to be big issue.
“Your brick-and-mortar stores traditionally see around a 9 percent rate for returns on merchandise,” Whaley said. “E-commerce can exceeded 30 percent.”
Highlights: Ikea, the new Midtown Kroger, e-commerce continues to change retail landscape, rising popularity of mixed-use development, experiential shopping options.
Forecast: Restaurants will continue to be the most active retailers, there will be continued momentum in redevelopment of the Pinch District, continued redevelopment of core assets, more suburban development.
He said it: “There was a lot of good activity in 2016,” Whaley said. “It was a really good year for Memphis on a retail front.”
Tom Grimes, MAA’s executive vice president and COO, said that millennials and their tendency to prefer rental properties are partly responsible for an increase in demand.
“The groups that skew rental housing are growing, and that works in our sector’s favor,” Grimes said.
Highlights: Growing millennial demographic that prefers to rent, affordability, job growth.
Forecast: Continued job growth will bring more renters into the market, strong 2016 will carry over, future of Memphis rental market looks strong.
He said it: “This is the single largest creator in households, and it is the absolute key to apartment rental growth,” Grimes said of the correlation between job growth and rental demand.
Southern Properties’ Bob Turner was very bullish on TIFs, or tax increment financing. Turner said that unlike payment-in-lieu-of-taxes (PILOT) incentives, where you have to pay for certain things, TIF districts build infrastructure for everyone’s benefit.
“There have only been about eight or nine of them in this area,” Turner said. “Memphis has figured out that to do them makes sense.”
Highlights: Demand is up, election has sparked a renewed interest in real estate, Land Use Control Board is planning for long-term growth.
Forecast: Owners will develop already acquired land before making new land purchases; there is still lots of money looking for a place to land, but caution is still a factor; tax reform could hurt real estate.
He said it: “I’m a country boy,” Turner said of the city’s embrace of nontraditional transportation. “We thought it was funny when people started building bike lanes around town. I’ll be the first to admit that has changed the city more than anything.”