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VOL. 132 | NO. 196 | Tuesday, October 3, 2017

Positive Absorption Streak Continues in Industrial Market

By Patrick Lantrip

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For the 17th straight quarter, the Memphis area industrial market continued its positive absorption streak, as it wrapped up Q3 2017 with more than 800,000 square feet of positive net absorption, according to commercial real estate brokerage firm CBRE’s Memphis Industrial MarketView Report.

These latest figures bring the year-to-date absorption total to 3.4 million square feet, with more than 4 million square feet of positive net absorption expected by the end of the year.

Additionally, the MSA finished the quarter with a total vacancy rate of 7 percent, which is down 1.5 percent since the beginning of 2017.

Currently, there is 4.5 million square feet of industrial space under construction in the area – 4.2 million of which is speculative.

Crane operator Sabastian Crouch concentrates on loading/unloading containers at the Norfolk Southern intermodal yard at Gateway Global Logistics Center. (Daily News File/Alan Howell)

Of that 4.2 million square feet of speculative space, more than 3 million will be delivered by Q1 of 2018, which is expected to result in an increase in the vacancy rate. But CBRE’s data indicates that this increase will only be temporary.

“There are currently 15 million square feet of active users searching for space in Memphis,” CBRE research analyst Lee Wright wrote in his report. “This level of activity indicates that vacancy is likely to decrease or remain flat as future construction deliveries are unable to keep pace with demand, resulting in continued upward movement on asking rates.”

In terms of new construction, the DeSoto County submarket continued to dominate the market with 80 percent of the activity, including IDI Gazeley’s 830,000-square-foot Crossroads Distribution Center Building I, which is currently expected to be delivered by the end of the year.

While there were no deliveries this quarter, there was one new project that broke ground – a build-to-suit in Fayette County for Pyramex Safety Products that is 270,000 square feet.

“Recently, two new developers, JDA and Core5 Development, have entered the Memphis industrial market, which means more speculative construction is underway than we’ve seen in several years,” Patrick Burke, CBRE’s senior vice president of Advisory and Transaction Services, said. “As of now, rates for new space continue to tick upward, but we are monitoring possible effects on rates which might occur from larger amounts of inventory hitting the market at once. This is a topic we haven’t dealt with post-recession.”

Leasing activity was also strong in the third quarter, as eight leases above 100,000 square feet were signed. Those included newcomer Supply Chain Solutions, which signed a 550,000-square-foot lease in the Memphis Depot Industrial Park, and PFS Web, which signed a 175,000-square-foot lease in Stateline Building H.

Meanwhile, XPO Logistics renewed a 536,000-square-foot lease in Prologis Park I; Nissan Motor Co. renewed 413,000 square feet in the Deltapoint Business Center; and Franklin Sports extended a 300,000-square-foot lease at 5510 Getwell Road.

“Tenant demand for space in the Southeast submarket remains strong even though other submarkets are currently the focus of more leasing and development activity,” Wright concluded. “Including renewals, the Southeast submarket recorded more leasing activity than any other submarket in Q3 2017.”

Intermodal loading/unloading activity at Norfolk Southern Yard out at Piperton/Rossville (Collierville). (Daily News File/Alan Howell)

While they won’t show up on the Q3 figures, two new ground-up projects are planned for the Southeast submarket, including DHL’s plans to build a 580,000-square-foot distribution facility on 55 acres east of Tchulahoma Road and west of Meltech Boulevard on the northern border of the state line.

And just north of DHL’s proposed site, IDI appears to be planning a large-scale commercial warehouse on a 139-acre tract of land located at 3292 Holmes Road. While no tenant or specifics regarding square footage have been released, IDI submitted a plat to city officials in 2007 detailing how a 1.1 million-square-foot facility would fit on the parcel in question. According to that document, the building would stand at a height of 45 feet and feature space for 194 trailers and a 300-car parking lot.

PROPERTY SALES 81 191 3,589
MORTGAGES 56 98 2,377
BUILDING PERMITS 259 259 8,215
BANKRUPTCIES 32 56 1,960