VOL. 133 | NO. 45 | Friday, March 2, 2018
New Construction North Of State Line Highlights Busy Q4
By Patrick Lantrip
A flurry of large-scale build-to-suit projects north of the Tennessee-Mississippi state line – the first of their kind in a decade – capped off a busy 2017 for the Memphis industrial market, which closed the fourth quarter with 665,896 square feet of net absorption, according to Cushman & Wakefield/Commercial Advisors’ latest Marketbeat report.
While DeSoto and Fayette counties have seen their fair share of new construction, Shelby County has not seen any new industrial construction since before the recession – long before Amazon, Certifit and DHL all announced plans for 500,000-plus-square-foot distribution facilities in Shelby County.
“These exciting projects represent the first significant new construction in Memphis and Shelby County since 2007,” Cushman & Wakefield/Commercial Advisors principal Kemp Conrad said. “While there has been solid recent leasing activity in second-generation industrial buildings in Memphis, this flurry of new construction is positive and should drive additional development north of the state line.”
Additionally, 6.4 million square feet of Class A leasing activity occurred in 2017 with 5.8 million square feet of new activity. Total direct average asking rental rates increased to $2.73 per square foot.
Amazon’s 615,000-square-foot southeast submarket facility marked the largest lease of the fourth quarter. Rounding out the top five were Rockwell Automation’s 212,098 square feet at 4020 Quest Way, Von Drehle Corp.’s 200,000 square feet at 5838 Advantage Cove, Terumo Medical Corp.’s 172,188 square feet at 8655 Commerce Drive, and Diversified Conveyors’ 109,994 square feet at 1908 Troyer Ave.
Meanwhile, industrial property sales topped more than $51 million, as investors continue to flock to secondary and tertiary markets like Memphis as the primary markets grow increasingly saturated.
Pennsylvania-based real estate investment management firm Exeter Property Group purchased more than 1.7 million square feet of space for more than $48 million in 2017, bringing their total to more than 16 million square feet in the Memphis market, with another 1.6 million-square-foot, two-building speculative project in the works.
The office market, meanwhile, absorbed 35,118 square feet of direct space in the fourth quarter, bringing the 2017 cumulative net absorption to 660,825 square feet, according to CW/CA’s office Marketbeat report.
While Q4 marks the fourth consecutive quarter of positive net absorption, much of the robust activity in 2017 can be traced to the delivery and occupancy of Crosstown Concourse, which added 552,258 square feet of office space to the market.
The report anticipates vacancy rates in East Memphis to increase slightly at the beginning of 2018 with the deliveries of 949 Shady Grove and TraVure, and the relocation of Wunderlich Securities to Downtown.
However, this shouldn’t affect the east submarket’s status as the dominant office market in the city.
“The East Memphis submarket will continue as the city’s strongest submarket in 2018,” CW/CA vice president Bentley Pembroke said. “New construction deliveries and looming Class A vacancy will present slight downward pressure on current Class A rental rates and lease concession; however, Class B buildings with large block vacancy will present the greatest opportunity to occupiers seeking value in the East Memphis corridor.”
International Paper’s 25,245 square feet at 6775 Lenox Center Court marked the largest lease of the quarter, with Evans Petree PC’s 23,706 square feet at 1715 Aaron Brenner Drive, and V Alexander’s 20,368 square feet at 51 Germantown Court also among notable leases in the Memphis metropolitan statistical area.
Magnolia Capital Investment’s $19.7 million purchase of the 163,446-square-foot Trustmark Centre, 5350 Poplar Ave., from Faropoint Investments marked the largest single purchase in the quarter.