2010 Global Market Report - NAI Commercial Real Estate

Knoxville, TennesseeMemphis, TennesseeContactNAI Knoxville+1 865 777 3030Metropolitan AreaEconomic Overview2009Population2014 EstimatedPopulationEmploymentPopulationHouseholdAverage IncomeMedianHousehold Income706,862770,531387,679$58,049$47,048Knoxville’s economy, unanchored by any single industry, hasseen a downturn in 2009. A number of major employershave been impacted by the economy and this is reflected incommercial real estate. Businesses are reluctant to makereal estate commitments despite the fact that prices havebeen adjusted downward.Office transactions have seen shorter term commitmentsby tenants and lower rates, both for new leases and forrenewals. Despite the Brookview Center leasing 30,000 SFto the largest law firm in the state and 58,000 SF to amedical staffing company and The Scripps Network doublingthe size of its corporate headquarters, vacancies are up andreturns to owners are dropping as rental rates fall. Industrialactivity has been very slow. Closings and layoffs haveoccurred such as the closure of America’s largest magazinedistributor, which cost 400 jobs.Some expansions have begun including Green MountainCoffee’s new packaging plant and a furniture maker openingin Morristown to supply IKEA. Meleleuca and Exedy AmericaCorporation began expansions that will add 540 jobs to themarketplace.Retail has suffered with vacancies in all geographic areas.Chain restaurants in particular have been right-sizingby closing units. One significant transaction that took placewas the lease signing by big box retailers, although active inmarket and site analysis, are waiting to see if more bargainscan be had. Two large developments Dumplin Creek inSevier County and the Sherrill tract in Knox County havefallen victim to more aggressive negotiating and delays asdevelopers nationwide complete for the tenants. The onlymultifamily or hospitality development has been the continuationof projects under way in 2008. Vacancies in allsegments are hovering around 10%.A major auto parts manufacturer closed a new plant inKnoxville as did an international electronics manufacturer,creating almost 700,000 SF of vacancy. A major officeemployer that manufactured molded plastic signs, largelyfor the auto industry, closed, as did a lower price point retailclothing chain headquartered here.ContactNAI Saig Company+1 901 526 3100Metropolitan AreaEconomic Overview2009Population2014 EstimatedPopulationEmploymentPopulationHouseholdAverage IncomeMedianHousehold Income1,286,1511,301,835679,256$63,599$52,090Memphis only delivered two large speculative office productsthis year, preventing a glut of space from being placedon a slow market. Industrial real estate development hasslowed as some larger vacancies have hit key submarketsbut leasing activity has been strong. Retail developmentstopped mid-year and rental rates have declined. Memphisoffice vacancy rates rose slightly to 12.6% due to negativeyear-to-date absorption of 26,174 SF.The slow down in the market has kept pace with the downturnin the economy, resulting in only two large, speculativeproperties, Boyle Investment Co.’s recently completed150,000 SF office building and Highwoods Properties150,000 SF Triad Centre III, coming on the market. UTMedical Group, Inc. had the largest lease of the year with85,651 SF at Mid Memphis Tower.Much of the leasing activity in Memphis has been renewalsand expansions, with a few companies taking advantage ofthe depressed market to change properties. Lease rates forthe overall office market remained fairly steady at$16.84/SF with the largest submarket, East Memphis, at1.5 million SF, seeing a Q3 increase to $19.41/SF.With Kuehne+Nagel, Inc. taking its 865,120 SF of subleasespace off the market and Conwood Co. LLC purchasing a787,500 SF building in Southeast Memphis, the amount oflarge warehouse space has decreased. Direct vacancyoverall, remained steady at 13.8%, the same as Q1 2008.Memphis experienced 195,855 SF of positive absorptionand lease rates dipped slightly to $2.62/SF. Several nationalcompanies looking for large blocks of space could edgelease rates upward next year.Retail vacancy tightened to 8.9% in Q3 2009 compared to10% in Q3 2008. Several national big box retailers closedMemphis-area stores, but that space was backfilled fairlyquickly by more robust companies.Memphis saw a drop in average asking rental rates, downto $10.98/SF. The Memphis office market is not overbuilt,allowing vacancy to drop as the economy improves andcompanies expand. The market could see speculativeindustrial development as soon as late 2010, most likely inthe DeSoto County submarket.Total PopulationMedian Age39Total PopulationMedian Age35Knoxville At A Glance(Rent/SF/YR) Low High Effective Avg. VacancyDOWNTOWN OFFICENew Construction (AAA)Class A (Prime)Class B (Secondary)SUBURBAN OFFICENew Construction (AAA)Class A (Prime)Class B (Secondary)INDUSTRIALBulk WarehouseManufacturingHigh Tech/R&DRETAILDowntownNeighborhood Service CentersCommunity Power CenterRegional Malls$$$$$$$$$$$$N/A16.0012.0019.0018.0012.002.002.254.7512.009.0012.0028.00$$$$$$$$$$$N/A17.5016.0022.0022.0017.004.004.2515.0021.0020.0026.00N/A$$$$$$$$$$$N/A16.7513.2520.5020.0015.003.253.409.0015.0016.5017.00N/AN/A14.4%16.0%24.0%16.3%19.4%12.0%14.0%6.0%11.0%9.2%8.0%N/ADEVELOPMENT LAND Low/Acre High/AcreOffice in CBDLand in Office ParksLand in Industrial ParksOffice/Industrial Land - Non-park$$$$150,000.00175,000.0020,000.0030,000.00$$$$300,000.00350,000.0085,000.00300,000.00Retail/Commercial LandResidential$ 250,000.00N/A$ 1,100,000.00N/AMemphis At A Glance(Rent/SF/YR) Low High Effective Avg. VacancyDOWNTOWN OFFICENew Construction (AAA)/Class A (Prime)Class B (Secondary)SUBURBAN OFFICENew Construction (AAA)Class A (Prime)Class B (Secondary)INDUSTRIALBulk WarehouseManufacturingHigh Tech/R&DRETAILDowntownNeighborhood Service CentersCommunity Power CenterRegional Malls$$$$$$$$N/A15.0010.00N/A11.295.001.00N/A1.001.008.00N/AN/A$$$$$$$$N/A22.5017.50N/A29.0024.004.05N/A19.8022.0025.00N/AN/A$$$$$$$$$N/A18.7513.75N/A20.1514.502.55N/A10.4011.5016.508.00N/AN/A16.5%32.4%N/A19.6%30.9%N/AN/AN/A32.8%16.4%24.7%N/ADEVELOPMENT LAND Low/Acre High/AcreOffice in CBDLand in Office ParksLand in Industrial ParksOffice/Industrial Land - Non-parkRetail/Commercial LandResidential$$$$$N/A261,300.0078,000.005,000.00211,111.0022,000.00$$$$$N/A700,000.00152,460.00174,240.00217,800.0076,500.002010 Global Market Report ■ www.naiglobal.com 125