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Overall, real estate locally reflects a sturdy economy

By Amos Maki
December 29, 2006

The real estate industry experienced a tale of two years in 2006 with residential chugging along earlier in the year and commercial -- particularly industrial -- picking up steam in the second half of the year.

Although it thundered along for most of the year, the local housing market is showing signs of cooling, which should create opportunities for buyers.

According to the Memphis Area Association of Realtors, 1,369 homes were sold in November, down 4.1 percent from 1,427 last year.

Sales volume for November hit $237.4 million, down 2.2 percent from $242.6 million last year. Meanwhile, the number of homes on the market soared 23.1 percent to 10,910, from 8,864 last November.

"For those who might be unsure of current economic conditions, there couldn't be a better time than now to buy a home in the Memphis area," said MAAR president William Mitchell.

Year to date, sales volume is $3.17 billion, up 10.1 percent from last year. Total sales volume for 2005 was $3.2 billion.

It was a very active year in commercial real estate.

Meanwhile, after a slow start, absorption in the Memphis industrial market, including DeSoto County, has totaled more than 4 million square feet, according to CB Richard Ellis Memphis. The market ended 2005 with 5.4 million square feet of absorption.

"There was about 2 million square feet leased in the last couple months and the momentum is there for 2007," said Jim Mercer, industrial team leader for CBRE Memphis. "The attitude of business is more proactive, there's a lot of investment capital out there and we've got some buildings under construction.

"I think that bodes well for next year," he said. "Memphis is not going to be a home run market, but its going to be a market you can count on."

Nissan North America is launching a 413,000-square-foot parts distribution center in southeast Shelby county, a move that culminated two years of negotiations.

The Japan-based company will take up nearly half of Lauth's 885,000-square-foot Delta Point One building, the Indianapolis-based company's first building in the Memphis market.

Also, Terumo Medical Corp., Imation, Iron Mountain, Jacobson Warehouse Co., and Sharp Electronics all cut major leases this year.

Office developers were in a building mood in 2006, with Boyle Investment Co. and Highwoods properties stepping out with new buildings.

Boyle announced it was launching two, five-story, 155,000-square-foot buildings to finish off Ridgeway Center. Highwoods announced plans to build a seven-story 130,000-square-foot building at its campus at Poplar and Shady Grove.

Tightness in the office market -- particularly in the East and 385 submarkets -- caused landlords to raise rents.

In less than a three-month period, Class A office buildings went from quoting first year rents in the mid-$20 range to a new high of $27-$29 per square foot for the first year of rent.

The overall vacancy rate for the third quarter was 15.2 percent, a three-year low.

"The most exciting thing about the office market is we've been down for years and now we've got solid absorption and decreasing vacancies," said Joe Steffner, president of Grubb & Ellis|Memphis. "That, combined with a strong economy, bodes well for office real estate in 2007."

In 2006, national firms the Staubach Co., Grubb & Ellis and Marcus & Millichap entered the Memphis market.

Looking ahead to 2007, Class B office space will see a lot of activity.

On the retail side, several major projects were announced in 2006.

Poag & McEwen Lifestyle Centers, the Memphis-based development group that has become nationally recognized for creating "lifestyle centers" like the Shops at Saddle Creek, is moving forward with plans to turn the 10-acre Highland Street Church of Christ site near the University of Memphis into a $45 million mixed-use project offering a range of living, dining and shopping options.

Look for other moves by Poag & McEwen in 2007, including the announcement of tenants at the Highland site.

Weingarten Realty Investors is moving forward with plans for a $100 million retail center at Poplar and Interstate 240.

Weingarten plans to raze the 26-acre Ridgeway Trace apartment complex in East Memphis and launch a project with nearly 400,000 square feet of retail and restaurant space. Company officials said the project should be open in late 2008 or early 2009.