The 106-million-square-foot Memphis warehouse/ distribution market may be pulling out of the doldrums, as both occupancy and rents have improved in the first half of 2012. Net absorption totaled 231,000 square feet in the second quarter, increasing the year-to-date total to 1.1 million square feet. With no new space completing, the vacancy rate was down 30 basis points over three months and 200 over twelve at 16.4%. Reis predicts the rate will end the year at 16.8%, as more than 800,000-square feet completes construction. In August, the 267,843-square-foot Crossroads Distribution Center building B completed construction (see Special Real Estate Factors). The rate is expected to drift down but remain above 15.0% through 2016, with moderate new supply and net absorption.
The average asking rent increased 0.4% during the quarter, with the average effective rent up 0.5% for the third quarter in a row. Rents were low, however, at just $2.42 psf asking and $2.15 psf effective. There was no further change in July, but Reis predicts gains of 1.7% asking and 2.3% effective for all of 2012 following two years of decreases. Typical annual increases are forecast at around 2.5% in the years to follow.
In the small 9.4-million-square-foot Memphis Flex/R&D market, the vacancy rate fell 70 basis points to 16.1% in the second quarter on 63,000 square feet of net absorption. The rate fell another 50 basis points in July, but is expected to end 2012 at 16.5%. The average asking rent rose 0.4% in the second quarter to $5.44 psf, while the average effective rent was up 0.6% at $4.78 psf. Gains of 0.4% asking and 1.5% effective are forecast for the year. No new supply is expected until 2014.
Cushman & Wakefield reports an overall vacancy rate of 14.2%, down 60 basis points from a year earlier. “The average direct asking rate for industrial space remains flat at $2.56 psf. Rates have increased in Class A bulk buildings in the DeSoto submarket where there has been good activity and positive absorption.”