The 19.2-million-square-foot Memphis general purpose, multi-tenant office market has shown little improvement since its cyclical lows. The second quarter vacancy rate of 22.6% was the eighth highest among the top Reis markets, and was up 10 basis points from the prior quarter and 50 from a year earlier. The cyclical high was 22.9%; Reis records a 22.8% rate in July. Net absorption was barely positive year-to-date as of that month, following four negative years. The Class A rate of 19.0% for the second quarter was nearly as high as the 25.8% rate for the Class B/C segment. Class A vacancy is up from a quarter and a year earlier, while Class B/C is down slightly.
Despite high vacancy, projects with pre-leasing recently broke ground—the 113,000-square-foot Poplar Healthcare Management Headquarters in June and the 45,000-square-foot MCR Safety Headquarters in September. Although Reis predicts net absorption at plus 132,000 square feet for all of 2012 and even stronger in future years, the resumption of new supply—absent since 2009—will slow the decline in vacancy.
Rents remained weak in the second quarter, with the average asking rent down 0.2% to $18.14 psf and average effective rent down 0.3% at $14.55 psf. The Class A asking average fell 0.4% to $20.47 psf, while the Class B/C asking average of $16.03 psf slipped a penny. The quarter’s overall asking rent decrease was the fourth worst performance among the top Reis markets; the effective average edged up a penny in July. Reis predicts rents will end 2012 essentially unchanged from the start of the year following three years of decreases, with a small increase to follow in 2013.
Cushman & Wakefield affiliate Commercial Advisors reports a vacancy rate of 23.5%, up 170 basis points from a year earlier, and a direct asking rent of $18.45 psf, down 0.4%. Large (by local standards) blocks of space are abundant according to this source.