Real Estate Awakening
The Daily News - 10-29-16
By Madeline Faber
The year’s biggest office deal didn’t affect Memphis’ office absorption at all, but everyone in real estate has felt its reverberations.
When ServiceMaster Global Holdings announced its move to the shuttered Peabody Place Mall from Ridge Lake office park, it promised new life for a 328,000-square-foot black hole in Downtown’s retail market.
ServiceMaster's move Downtown has awakened the sleepy Memphis office market, while other commercial real estate sectors are rolling. Also, read about our Nov. 3 CRE Review & Forecast. (Memphis News/Andrew J. Breig)
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The move could shift the tide from the dominant East Memphis office market to Downtown, which is currently seeing a 24 percent vacancy rate. By December 2017, ServiceMaster will flood Downtown with 1,200 new employees to benefit the area’s retail, restaurants and potentially residential offerings.
“We've already seen some of the ripple effects of it,” said Jeb Fields, vice president with Cushman & Wakefield/Commercial Advisors. “Whereas typically we see more people, more corporations looking to move out of Downtown into East Memphis or the suburbs, you're seeing a lot of the reverse with people starting to consider Downtown.”
ServiceMaster will invest $15 million in its headquarters with landlord Belz Enterprises contributing $12 million to the building’s conversion.
Terry Ingram, vice president of supply management for ServiceMaster, said requirements for its new headquarters excluded any existing office building Memphis had to offer. Memphis’ fourth largest public company needed around 300,000 square feet of space that was in a dynamic environment and not in a high-rise.
“I think Downtown was very interesting because it provided us with the opportunity to do what we were trying to achieve without starting from scratch,” Ingram said. “It was already in the middle of amenities and already had the basic building foundation and the floors plates and everything we were looking for, we just needed to reconfigure it.”
Historically, East Memphis’ booming occupancy has directly hurt Downtown. Fields said that tide could be turning, with Memphis finally having enough critical mass to support the growth of several submarkets concurrently.
Over the past two years, available space in the East Class A submarket has decreased by more than 75 percent. According to third quarter data from Xceligent, the highly desired submarket has a 4 percent vacancy rate.
Ron Kastner, vice president with CBRE, said that absorption has slowed due to a lack of available office space.
“Nevertheless, there is still inherent demand within the occupier community and the need for new space, different space or better space is still driving companies to seek new locations,” Kastner said. “I don’t see this trend changing any time soon.
“Meanwhile, those tenants who cannot find the right space are deciding to renew and delay move decisions and are seeing higher proposed rates than expected at renewal time.”
Out east, the Memphis office market received a long-needed reprieve. Boyle Investment Co. has begun construction on a 155,000-square-foot Class A building in its Ridgeway Center office park. The office tower at 949 S. Shady Grove Road will be Memphis’ first substantial office project with speculative space in nearly 10 years. Pinnacle Financial Partners signed on to be the first tenant in the building, taking 35,000 square feet.
Boyle also completed a new building at Schilling Farms in Collierville. The 50,000-square-foot Class A building is 50 percent occupied by Helena Chemical Co.
“I'd say that Collierville's getting some momentum, too,” Fields said. “There’s a lot in the pipeline, from office users to new residences.”
MULTIFAMILY CONSTRUCTION HEATS UP
Multifamily in Collierville also got a big boost this year. In the second largest multifamily sale of the year, the Madison at Schilling Farms apartment complex changed hands for $34.3 million. Spyglass Capital Partners, a New Jersey-based private equity firm, purchased the 324-unit property from Arenda Capital Management.
Also in Schilling Farms, Boyle wrapped up construction on a few buildings in its Carrington West development, an eight-building apartment project.
With retail, educational, office and residential uses side-by-side, Schilling Farms is an example of the new urbanism that brings density and mixed-uses to a suburban environment.
Read more at source
