Distribution, related relocations, a tight apartment market with renewed construction activity and the construction of a new regional retail mall punctuated the Memphis, Tenn., commercial real estate market during 1995.
Industrial interests continue
A tally of 14 relocations or announcements over a recent 12-month period amounts to more than 4 million sq. ft. of industrial real estate being absorbed. Developers are gaining commitments on buildings as fast as they can construct them, and Panattomi & Van Valkenburgh of Sacramento, Calif., also has entered the market, seeing the level of activity.
This momentum also has caused companies such as Memphis, Tenn.-based Weston Cos. to construct 1.4 million sq. ft. of warehousing space in Memphis over the coming months -- all speculative product.
Other busy industrial developers in this market include IDI, RFS, Draper Kramer and Belz Enterprises -- all with aggressive building programs in place.
Recent relocations by distribution companies and anticipated relocations include: Ingram Micro, R.R. Donnelley & Sons, Pfizer, Creative Computers, Mazda North America, Globelle, Family Dollar, Reebok, Toshiba America Information Systems Inc., General Parts, Inc., Intelligent Electronics, Volvo GM Heavy Truck Corp., Avery Dennison, Technicolor Video Services Inc., Caroline Records, Gould's Pumps Inc. and Tibbet & Britten, among others.
"We're seeing a continuing interest in this whole logistics and distribution field," says Larry Jensen, president of Commercial Tennessee Inc., Memphis, Tenn.
Institutional investment groups have continued to buy this property type in the city as well. L&B Real Estate Counsel of Dallas bought two warehouse facilities in Southpark.
"Memphis has become a very attractive market for both institutional investors and industrial REITs to pursue," says Andrew J. Groveman, senior vice president for Memphis, Tenn.-based Belz Enterprises.
"There's a tremendous amount of interest from outside investors," says Edward Saig, president of the Saig Co., which is also based in Memphis, Tenn.
Additionally, Denver-based Security Capital Industrial Trust, a REIT, bought some 2.5 million sq. ft. of warehouse space in the Memphis area from multiple owners.
Another new benefit to economic development is the recent inauguration of direct service to Amsterdam via Northwest/klm, which is getting strong cargo bookings. It converts from four-day-a-week flights to daily nonstop flights beginning the summer of 1996.
At Nonconnah Corporate Center, Chicago-based Draper Kramer had a significant transaction, which wide headquarters of Fe Ex for a out 242,000 sq. ft. Draper & Kramer will construct a speculative flex building, a facility set to be completed in 1996. The presence of Federal Express' Superhub and headquarters has brought in industrial prospects for years.
Other factors contribute to the spate of relocations.
The national move to consolidation is driving this trend, says Curt Grantham, vice president of Dallas-based Trammell Crow Co., which is initiating a mixed-use, 360-acre development at Forest Hill-Irene Road and Winchester near Nonconnah Parkway to be called Forest Hill Heights. The city finds itself in a strong suit as various companies reconfigure logistics systems to get location and transportation advantages.
During the year, Atlanta-based IDI completed the buildout of the 200-acre Southpark and wrapped up the second phase of Century Center Business Park. IDI also has started construction on over 1 million sq. ft. of new distribution and office/warehouse space, says Steve Nelson, senior vice president.
Existing tenants, such as Starter Corp., Troll Associates and Daisytek, are expanding. And Wilkinson & Snowden has built a 353,000 sq. ft. spec building and has leased most of it.
Meanwhile, Hunter Fan Co. and Duracraft Corp. combined to occupy the first bulk warehouse in its newest park, Memphis Distribution Center, where a second building of 420,000 sq. ft. is set to be completed.
The biggest hit in the manufacturing arena for 1995 was the announcement of Birmingham Steel Corp. to build a $170 million plant on a 500-acre site in Pidgeon Industrial Park.
Altogether, Memphis has some 105 million sq. ft. of industrial space, most of it distribution-oriented. The overall vacancy rate is about 12%.
Build-to-suits lead office market
In office development, several build-to-suits for corporate users have emerged. Examples are the newly finished 250,000 sq. ft. headquarters for the Autozone auto aftermarket parts company downtown and the new Sedgwick James insurance company headquarters out east in Ridgeway Center.
And Mueller Industries of Wichita, Kan., has announced its intention to move its headquarters to Memphis, but no site yet has been announced. In addition, Thomas & Betts and International Paper Co: are planning expansions out east.
Memphis, Tenn.-based Boyle Investment Co. is a large player in the office market, particularly in the east sector. It developed the only multitenant office building to be built in Memphis in several years, says Mark Halperin, a senior vice president with Boyle. The building which opened in October is six stories and 150,000 sq. ft.
"The lack of construction in recent years created tightening supply and all segments are seeing increasing rents and occupancies," Halperin says. "Rents generally aren't high enough to generate significant new construction with the exception of build-to-suits."
However, a deviation to the rule of most office construction being build-to-suits is a plan by Memphis, Tenn.-based Clark & Clark to develop Lenox Corporate Park, a staged office park to cover 85 acres at Kirby Parkway and Nonconnah Parkway.
In the building sale category is the purchase of the 34-floor, 639,000 sq. ft. Clark Tower in East Memphis by Chicago-based LaSalle Partners for $24.4 million. LaSalle also recently picked up management of the Falls Building downtown.
"We are at historical highs in three critical categories: rental rates, occupancy and absorption," says Earl Blakenship, chairman and CEO of IRC. "I think what we're seeing will continue."
An accounting of office space by IRC shows an overall occupancy rate of 85.5%. Total inventory of office space in Memphis is around 18.6 million sq. ft. The overall office vacancy rate is about 15%.
New mall sparks retail market
The largest current retail development is the Wolfchase Galleria, which is northeast of Memphis near 1-40 and Germantown Parkway. Urban Retail Properties Co. of Chicago is expected to open the 1.1 million sq. ft. mall in 1997 on 167 acres. It has sparked at least two nearby power centers, one by North Carolina-based Faison Associates and the other by Trezevant Realty Corp. of Memphis.
Some of the newer retailers in town are: Home Depot, Old Navy Clothing Co., Computer City and Bed, Bath & Beyond.
The retail market has a vacancy rate of about 11%.
Other giant construction projects include a full renovation of the vintage Central Station, a railroad terminal being turned into a multimodal passenger station, and also the Peabody Place development downtown.
Renovation of Pembroke Square and 50 Peabody Place is progressing. Pembroke Square will offer office, retail/commercial space as well as loft apartments. 50 Peabody Place will provide retail space at the Main Street level and office space on upper floors.
Peabody Place is to start construction soon on a 185,000 sq. ft. office tower, which will contain 155,000 sq. ft. of office space and the rest will be retail shops and parking. Belz Enterprises, developer of the project, has renovated and rehabilitated buildings in the same vicinity, including the former Gayoso Hotel, which it converted into a fully leased apartment residence.
When completed, it will include a large urban entertainment center, a hotel, retail space for specialty stores, boutiques, restaurants, office and living spaces in converted buildings.
As more elements of Peabody Place are renovated or constructed, the development is taking on the activity of an enclave all its own within the historic business district.
Multifamily market sees construction
New construction is the big story in the Memphis apartment scene, says Scott Ledbetter, president of SPL Corp, which is also based in Memphis, Tenn. His company projects the highest construction level in several years.
"1995 was an exciting year in that we have the combination of great occupancy, strong rental increases and a reasonable level of new construction that is consistent with demand," Ledbetter says. "Although we have more units under construction than we've had in the last five years," continues Ledbetter, "indications are that the level won't get out of hand. One restraint on construction is that the prevailing rents are still not at the level required to justify the typical new project. Niche projects are the only ones justified by pro forma operations."
With new apartment completions totaling less than 800 units in the 1992-1994 period, 1995 was the start of a new cycle of development with as many as 1,500 units expected to be completed, says Kate L. Eidson, vice president of marketing with SPL and its related company, LEDIC Management Group. "Although this is the largest number of units to be added in any year since 1990, the 1995 year-end occupancy is expected to remain in the 94% to 95% range."
Banks, insurance companies and REITs have the money to lend or spend, Ledbetter says, and they are seeking outlets for their cash. They will lend conservatively, with relatively large equity, and to experienced developers.
Also, the 19-story Exchange Building, a $23.5 million project of Portland, Maine-based Gleichman Co., is being renovated into 202 moderately priced apartments with commercial space on the ground floor. The same company, now called Landmark America, plans other nearby projects under the Downtown Core Redevelopment Plan.
Hotels
The hotel market has seen as much activity as multifamily. The Memphis Convention & Visitors Bureau calculates a citywide hotel occupancy rate of 71 In addition, Tunica County, Miss., to the south now has three casino hotels and 10 independent hotels, all regularly booked.