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VOL. 132 | NO. 135 | Monday, July 10, 2017

Memphis, Other Secondary Markets Poised for Industrial Growth

By Patrick Lantrip

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Construction wraps up in April 2017 on the newest building in the Gateway Global Insustrial complex in North Mississippi. While pent-up distribution demand exists across most U.S. markets, warehouse development has been slow in many secondary markets and has led to a growing supply/demand imbalance. (Daily News File/Andrew J. Breig)

When it comes to logistics, the primary distribution center markets like Atlanta, Chicago and Los Angeles have led the way in terms of warehouse development. But as more companies look to tighten their supply chain, secondary markets – including Memphis; Louisville, Kentucky; and Cleveland, Ohio – have found themselves in a better position to absorb growth.

Since 2011, the 13 largest industrial markets have seen average rental rates increase by 30 percent and vacancy decline to 4.9 percent, according to a national report released by commercial real estate brokerage firm CBRE. Average rents in 17 secondary markets, meanwhile, have increased by only 13 percent but are exceeding pre-recession levels.

“The need for a deeper supply-chain presence to cover regional locations is poised to accelerate growth in secondary markets,” the report found.

According to the data, Memphis’ average $2.46 per square foot lease is well below the secondary market national average of $4.61. Additionally, Memphis and Indianapolis were the only secondary markets measured by CBRE that experienced a drop in asking prices since 2011, which creates an attractive market for prospective tenants.

Of the secondary markets, Portland, Oregon, had the largest increase of average rental rates at 30 percent, while Memphis’ decrease of 2.8 percent was the lowest. For context, Oakland, California’s 77 percent increase marked the highest among the primary markets, while the I-78/81 Corridor in Pennsylvania had the lowest at 14 percent.

In terms of vacancy, Memphis’ 7.2 percent rate is slightly higher than the national secondary market average of 6 percent, but is noticeably lower than its 2011 average of 12.8 percent. Meanwhile, the primary markets averaged a vacancy rate of 8 percent, with Orange County, California’s 3.5 percent representing the lowest figure, and the I-78/81 Corridor’s 13 percent being the highest.

The report concluded that slower warehouse rent growth in secondary markets may have been a constraint, but now that rents have pushed past pre-recession levels, the opportunity for increased development is here.

“As infrastructure for e-commerce fulfillment expands, the industry will seek to expand its real estate footprint in secondary markets to better cover a larger portion of population centers and increase delivery speeds,” David Egan, CBRE Americas’ head of Industrial and Logistics Research, said about the data. “As this unfolds, second-tier industrial markets like Cincinnati, Louisville, Charlotte, Memphis and others offer ideal market fundamentals for developers and e-commerce companies looking to expand their supply chains.”

The data seems to corroborate an announcement made Friday, July 7, by Memphis-based IMC Cos.

IMC, which has a national network of intermodal logistics businesses that provides container drayage, customs brokerage and warehousing, has opened two new offices just outside Cleveland as well as Minneapolis, Minnesota – both secondary markets.

The intermodal logistics company’s Ohio Intermodal Services brand, headquartered in Columbus, opened its newest location in Brooklyn, Ohio, that includes 10 drivers based in Cleveland. Its DNJ Intermodal Services brand, headquartered in Chicago, opened its newest location in St. Paul, Minnesota, where it will have 21 drivers based.

Both brands focus on container drayage for clients in the Midwest.

“The need for these new locations is a result of organic growth in these regions,” Mark H. George, chairman of IMC Cos., said in the announcement.

PROPERTY SALES 0 283 8,118
MORTGAGES 0 333 9,118
BANKRUPTCIES 0 109 5,268