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VOL. 10 | NO. 9 | Saturday, February 25, 2017

Within Memphis’ Massive Industrial Market Lies ‘Hidden Office Space’

By Patrick Lantrip

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It’s easy to dismiss the city’s abundance of large warehouses as just big boxes full of smaller boxes, but according to Cushman & Wakefield/Commercial Advisors president and CEO Larry Jensen, that would be a mistake.

“In a 21st-century warehouse, it’s a lot more than a box full of boxes,” Jensen said.

While many companies traditionally kept their office and industrial operations separate, Jensen said more and more companies are finding it easier and more cost-effective to combine the two.

“They have found there is a lot of synergy if they bring all of those operations under one roof,” he said.

Which, in turn, has helped grow what he calls the city’s “hidden office market.”

“I’ve always said that I don’t think we really recognize how many square feet of that space is actually office,” he added. “Go look at the parking lots. A lot of times they are full of people in an office environment doing office functions to support the larger function of the distribution and logistics supply chain.”

Jensen highlighted five major industrial deals that have recently been inked in the area: Sephora, Milwaukee Tool, Cummins Diesel, TJX Cos. and Coca-Cola.

Those five deals total 3.2 million square feet of industrial space. Roughly 185,000 square feet of that, or 5.8 percent, is office space – which, for perspective, is approximately 28 percent larger than Germantown’s 144,000-square-foot TraVure project.

CW/CA principal Patrick Walton said those numbers grow even higher when the more than 6 million square feet of new Class A leasing activity in the Memphis metropolitan statistical area is considered.

If 5.8 percent of office space held true to the 6 million square feet of new Class A leases in the MSA, there would be more than 348,000 square feet of hidden office space – almost 2 1/2 times the size of TraVure.

When looking at these office deals, Walton said CW/CA only tracked “beyond-the-roof expansion,” which means that if a company knocked down a wall and expanded, it wouldn’t count as new activity, but if the same company constructed a building across the street, it would.

“So 6 million square feet is a conservative number for Class A leasing activity, but at some point you have to pick a way to track all the significant activity we are seeing,” Walton added.

One of the main factors contributing to the large amounts of hidden office space is the result of the rise of e-commerce, which is hybridizing the industrial and retail sectors.

“If you’re going to have a more robust retail function, it’s almost like you’re shifting the sales from the store floor to the warehouse floor, and that takes people who are doing something besides going and picking up a box and putting an address on it and getting it out,” Jensen said.

He added that while this function is changing the way consumers interact with retail operations, it most likely won’t spell an end for the different sectors.

“I don’t know that you’re necessarily going to have all of the retail brokers become industrial experts, or the industrial brokers all become retail, but I think you’re going to have a melding of some real estate professionals who have a comprehension of both of those and are able to breach that,” Jensen said. “The brokers who comprehend this and are able to see both sides will be the ones who succeed.”

PROPERTY SALES 56 437 16,061
MORTGAGES 76 508 18,556
BUILDING PERMITS 241 876 33,390
BANKRUPTCIES 64 301 10,314