Western Tennessee city's commercial real estate rebirth resounds through office, industrial, multifamily, retail.
With a number of major development projects either under way or on the drawing board, commercial real estate professionals in the Memphis area say they are expecting all segments of the local commercial real estate market to remain strong for at least the next few years.
"Memphis overall is enjoying quite a strong resurgence and continues to be an excellent market from a commercial standpoint," says Andy Groveman, senior vice president of marketing and administration for Memphis-based Belz Enterprises. "We believe the outlook for '98 will be continued strong enhancement, especially of the downtown retail market and commercial market."
Belz Enterprises is in the final stages of developing its long-planned Peabody Place, a mixed-use development located on the south end of downtown Memphis. Peabody Place includes some new construction in addition to the renovation of several existing buildings. The centerpiece of the project is The Tower at Peabody Place, the first speculative office building to be constructed downtown in more than a decade. The 15-story building, offering 155,000 sq. ft. of office space, opened in June and is almost fully leased. According to Groveman, construction on the retail and entertainment component of Peabody Place is scheduled to begin later this year. That component of the project should be completed in 1999, Groveman says.
"We're beginning to get a strong residential component downtown and the outlook for retail is promising," Groveman says. "This is an exciting time for downtown Memphis."
Multifamily In fact, the downtown apartment scene stands out as one of the most interesting developments in the local multifamily industry, as a number of projects are under way which should contribute to the number of residential spaces available in that part of the city. According to the latest report from the Center City Commission, approximately 5,600 people inhabit 3,365 residential units in downtown Memphis.
Outside of the downtown area, a number of major apartment projects are either under construction or planned in 1998. In terms of new multifamily development, the Germantown/Cordova area remains the most active area for construction, while southeast Shelby County ranks as the second most active area and Desoto County, Miss., comes in third.
Frank Stallworth, senior vice president of Financial Federal Savings Bank in Memphis, says that there were approximately 2,350 completions in the multifamily housing market in 1997. That's down from an anticipated 2,800 completions. According to Steve Rudesill, executive vice president of Memphis-based investment brokerage and market research firm SPL Corp., inclement weather in early 1997 delayed construction, forcing the completion of many multifamily developments into 1998.
The Memphis market was expected to absorb between 2,000 and 2,200 new units in 1997, which means that there essentially will be a wash for the year in terms of completions vs. absorptions, according to Stallworth. Overall, the rental increases for 1997 were around 3.5%, Stallworth says, with the highest rents per sq. ft. being in the downtown area. The overall average occupancy rate for the Memphis apartment market is almost 94%.
In 1998, anywhere from 3,000 to 4,000 multifamily units are expected to be completed, Stallworth says. Absorption in 1998 is likely to remain at 2,000 to 2,200 units.
These new units will soften occupancy levels to 92%, which may compel developers with apartment communities in the planning phase for 1998-1999 to hold off until the market regains its strength, says SPL's Rudesill.
Office Approximately 150,000 sq. ft. of office space was added to the Memphis market in 1997. According to CB Commercial/Interstate Realty Corp., the total inventory of office space in the Memphis metropolitan area is approximately 19.1 million sq. ft. The overall occupancy rate for the Memphis metropolitan area was 88.34% in mid-1997, an increase of .98 points since year-end 1996. The average rental rates for the Memphis metropolitan area rose in the first six months of 1997 over year-end 1996 rates. The average rate for the overall market was $14.46 per sq. ft.
The east Memphis submarket continues to have the greatest portion of the total office inventory in the Memphis metropolitan area with 8.5 million sq. ft., which represents 45% of the total market inventory. Occupancy for this submarket increased slightly in 1997 to 94.7%.
Over the past 12 years, the majority of new office construction has taken place in the east Memphis submarket. The first six months of 1997 marked an exception to this general rule with the delivery of The Tower at Peabody Place. With the opening of that new office building, the downtown submarket now takes up 5.3 million sq. ft. of the total market inventory with an average occupancy rate of 80.5%. This past year, the downtown submarket saw the largest increase in occupancy for the entire market, rising from 77.76% at year-end 1996 to 80.5% at midyear 1997. The downtown submarket also showed the largest increase in rental rates for the market -- from $12.29 per sq. ft. at year-end 1996 to $12.82 per sq. ft. at midyear 1997.
Net absorption for the Memphis metropolitan area in midyear 1997 was moderate at 137,747 sq. ft. The downtown submarket saw the largest gain in absorption at 98,469 sq. ft.
"The supply and demand patterns in the local office market are very well balanced," says David Peck, president and chief executive officer of Weston Cos. "There was a very large amount of oversupply put on the market during the late '80s and early `90s. That's all been absorbed now, which has triggered significant activity in the build-to-suit portion."
Over the past 20 years or so, office space in Memphis traditionally has been developed in the downtown area or along Poplar Avenue in east Memphis. In east Memphis, Weston Cos. announced plans in late 1997 to launch its first speculative office project in more than 10 years -- a $12 million, 100,000 sq. ft. building scheduled to be completed by the end of 1998.
Also in the east Memphis submarket, Highwoods Properties announced plans in 1997 to develop a third tower at the International Place complex, a development owned and operated by the company. The 11-story, 200,000 sq. ft. office tower will mark the final phase of the International Place development, already the site of two almost identical towers and home to International Paper Co.'s Memphis headquarters.
In the mid-1990s, a number of office submarkets began developing in areas outside the traditional downtown and east Memphis/Poplar Avenue areas. Those submarkets began to mature in 1997 with new construction which is expected to continue through 1998 and beyond.
In the northeast part of the city, construction either began or continued on a number of new facilities in the Goodlett Farms development located south of Interstate 40 between Whitten and Appling roads. Those projects include a 120,000 sq. ft. building for BellSouth Mobility and a 128,000 sq. ft. building for Union Planters Bank.
One of the strongest emerging office markets in the Memphis metropolitan area is in southeast Shelby County along the path of the Nonconnah Parkway. The parkway, which was completed at the end of 1997, links east Memphis and Collierville. One of the largest office developments in that area is the Lenox Corporate Park located on Kirby Parkway south of Nonconnah Parkway. Lenox Corporate Park is being developed by Clark & Clark. Construction recently began on the third building at the office park. Building C will add 96,500 sq. ft. to this speculative office campus when it is completed in April 1998. This newest building joins two existing 96,000 sq. ft. buildings.
Moving east along the parkway, Memphis-based Federal Express announced plans in early 1997 to build a 1 million sq. ft. office complex on an 89-acre site near Southwind, a large mixed-use development built around the Tournament Players Club at Southwind.
Still further east along the Nonconnah Parkway, Celcore Inc. is building a $12 million corporate headquarters and manufacturing plant in the Forest Hill Office Park at Winchester and Forest Hill-Irene roads. That project will consist of two 50,000 sq. ft. buildings.
A number of new office developments are planned or under way in the fast-growing Collierville area, the terminus of the new Nonconnah Parkway. In early 1997, FedEx broke ground on a 70-acre, five-building, campus-style technology center in the west part of Collierville. When completed later this year, the $60 million complex will have approximately 400,000 sq. ft. of office space. Not too far from the new FedEx development, Boyle Investment Co. is developing the 450-acre Schilling Farms and the 245-acre Price Farms. Together, the two mixed-use planned developments represent a $350 million investment.
Manufacturing and distribution While the Memphis industrial real estate market has been booming for much of this decade, the 1997 absorption rate lagged behind the pace of the last few years, creating a buyer's market. Still, local developers and brokers aren't concerned about having too much product on the market -- particularly considering that Memphis has been absorbing 5 million to 6 million sq. ft. a year since 1994, a phenomenal rate for a market consisting of about 115 million sq. ft. The vacancy rate for this market is hovering around the 10% range. Available space in buildings of 100,000 sq. ft. or more has reached about 6.5 million sq. ft., according to reports from CB Commercial/Interstate Realty Corp.
Kurt A. Nelson, leasing associate with Industrial Developments International (IDI), says that his company is moving forward with plans for a 254-acre business park in southeast Memphis. The site, to be known as the Chickasaw Distribution Center, potentially can accommodate 4.2 million sq. ft. of warehousing space and will be developed for multitenant and build-to-suit demand. Work is scheduled to begin on the $120 million development in the first quarter of 1998.
IDI just recently began construction on a 350,000 sq. ft. build-to-suit facility for Asics Tiger. The facility, which has a price tag of roughly $9.5 million, is located in Desoto County, Miss.
According to Nelson, the Asics Tiger project is the first of what probably will be a number of build-to-suit deals in fast-growing Desoto County. Wyatt Aiken, senior vice president at Commercial Tennessee, says a number of developers are seeing tremendous potential in the county.
"Right now, southeast Shelby County is still the main area for the big bulk distribution users and the small users as well," Aiken says. "But, Desoto County certainly is making some major gains. I believe the decisions by Mazda and Asics Tiger to move into Desoto County are the beginnings of a trend that's likely to continue for the next several years."
Panattoni, a Sacramento, Calif.-based development firm, is developing two industrial parks in southeast Shelby County. Southpoint, a 400-acre industrial park, has about 3 million sq. ft. of space. Centerpoint Distribution Park, a 350-acre park, has about 1.8 million sq. ft. Panattoni currently has about 900,000 sq. ft. under construction at Southpoint, but most of that space has been preleased. The developer also has a 350,000 sq. ft. spec building under construction at the park. That second building is expected to open this year.
Weston Cos. recently completed two buildings at its Midway Distribution Center. The largest building is a 360,000 sq. ft. facility, while the second building has 168,000 sq. ft. According to Peck, construction will begin on a third building at that location in 1998.
The new Birmingham Steel Corp. facility, located in the Frank C. Pidgeon Industrial Park, already is creating more jobs in the community by attracting support industries. The $200 million steel melt shop, located on a 500-acre site at the industrial park, opened in late 1997. In mid-1997, Luria Brothers Division of Connell Limited Partnership announced plans to develop a metal scrap yard and barge loading operation in the industrial park. Luria Brothers plans on investing $13 million in the facility that will be built near the Birmingham Steel site.
A large number of other distribution and industrial projects were in some stage of development in the Memphis area in 1997. Ingram Micro, the world's largest computer products distributor, opened its 600,000 sq. ft. distribution center north of Memphis in the Millington Business Park. Kroger Food Stores is building a $47.1 million, 565,000 sq. ft. distribution center in the Holmes Road Industrial Park at Hickory Hill and Holmes Road. UPS is building a $65 million, 630,000 sq. ft. regional cargo center at Memphis International Airport. Also at the airport, FedEx is building a 525,000 sq. ft. small package and document sorting center.
"We think next year will see quite a bit of new spec development and absorption," says Aiken.
Retail Retail activity in 1997 remained centered primarily in the northeast and southeast areas of Memphis and Shelby County. Approximately 1.5 million sq. ft. of retail space was added to the market in 1996 and another 1 million sq. ft. in 1997, according to Peck of Weston Cos. The overall occupancy rate for retail space in the Memphis market is in excess of 94%, Peck says.
"We believe the retail market will remain strong in 1998, but you'll see only about 500,000 sq. ft. of retail space added to the market," Peck says. "The strongest markets in retail for Memphis are the northeast and southeast, the largest of which now is the southeast. However, we anticipate that, within five years, the northeast will pass the southeast in total square footage."
Most of the retail development in the northeast part of Memphis has centered around the Wolfchase Galleria, a 1 million sq. ft. regional mall which opened in early 1997 at the intersection of Germantown Parkway and U.S. Highway 64 just north of I-40. Located near the mall are several new retail developments including the $65 million development known as The Market at Wolfcreek, developed by Trezevant Properties, and a $12.5 million power center known as The Commons, developed by the Charlotte, N.C.-based Faison. A second power center, to be called St. Charles Place, is under development on a 26-acre site east of the Wolfchase Galleria. That development is expected to have anywhere from 560,000 to 600,000 sq. ft. of retail space along with three hotels.
In the southeast part of the county, Weston Cos. recently completed the development of Cross Creek Center located south of the Nonconnah Parkway at Winchester and Riverdale. Cross Creek, a $30 million retail development, has approximately 450,000 sq. ft. of retail space.
Another high-growth area for retail development is the Germantown Parkway corridor running through Cordova. Weston Cos. now is developing a multimillion shopping center at the intersection of Germantown Parkway and Dexter Road. The first phase of that project will have 250,000 sq. ft. of retail space and is scheduled to be completed in the second quarter of 1998. A second phase, scheduled to be built later, will add anywhere from 150,000 to 250,000 sq. ft. of retail space.
According to the Memphis Convention and Visitors Bureau, more than 500 new hotel rooms were built in Shelby County during 1997 with most of the new construction taking place in the Cordova/Germantown area. At year-end 1997, the overall number of available hotel rooms in the Memphis metropolitan area had reached 14,000.