Market Data

Jazzing Up Memphis

New commercial developments attract residents and businesses to this Southern city.

Blighted for years by suburban flight and the subsequent business exodus, downtown Memphis today is experiencing a renaissance. Bolstered by popular entertainment and cultural venues such as the new AutoZone Park and the revitalized Beale Street that have attracted hundreds of new residents, the city has embarked on an unprecedented $2 billion development initiative to boost economic growth and tourism. Multifamily and retail projects dominate Memphis' commercial real estate scene, as office activity stagnates due to the continuing depressed job market.

Commercial Projects Boost Downtown Vitality

Developers initiating projects in downtown Memphis benefit from numerous financial incentives. To encourage commercial development, the city assesses properties in the Central Business Improvement District 65 cents per $100 of assessed value. The Center City Revenue Finance Corp.'s payment in lieu of taxes, or PILOT, program freezes property taxes for CBID and nearby buildings that have improvements or new construction costs equal to or greater than 60 percent of the project's total cost. Property owners also can apply for $90,000 City Center Development Corp. low-interest building redevelopment loans and a 20 percent federal historic tax credit.

New office and retail tenants in Main Street district ground-floor properties can take advantage of a loan program that allows them to borrow up to 90 percent of improvement costs. The city also rewards commercial real estate brokers with a one-time, $5,000 bonus for signing new office and retail tenants in CBID properties.

No new CBID office buildings currently are planned, but numerous other commercial developments are underway. The largest public project under construction is the $250 million FedEx

Forum, the future home of the Memphis Grizzlies National Basketball Association team. Scheduled to open in September, the more than 18,000-seat arena, located near historic Beale Street, includes outdoor entertainment areas and a 35,000-square-foot plaza.

The remaining new construction mainly comprises multifamily and mixed-use developments. For example, the city has teamed with several private companies in the $150 million revitalization of Uptown, a mixed-income community just north of the central business district; the plan includes infill multifamily construction and public housing renovation. Also in that neighborhood, the $3.5 million Uptown Place will add much-needed retail, including a gas station, convenience store, and dry cleaner, as well as 8,880 sf of residential space.

Historic redevelopment projects also abound in the city center. For example, the $29 million conversion of the Lowenstein Department Store, the Court Annex Warehouse, and the Lincoln American Tower into the Court Square Center is scheduled to begin in March. When complete, the project will include more than 70 apartments, two 7,000-sf offices, and ground-floor specialty retail.

Retailers Flock to CBD and Suburban Developments

Although retail construction slowed a few years ago, "this lag in additional supply served to keep demand fairly strong, and we are now seeing development increase with the increase in demand," says Frank M. Dyer III, CCIM, of Loeb Properties.

Retail redevelopments are giving store owners a reason to move back into once-depressed areas. "We are seeing more renovations of older shopping centers within the heart of Memphis, as new retailers enter the market to fill demographic niches," says Cherie Ganesh, CCIM, of Cresa Partners Memphis LLC. For example, Bluff City Group is demolishing a vacant Uptown building and replacing it with 8,000 sf of retail space and several loft apartments. Recently opened businesses downtown include women's fashion retailer Muse, South Main Convenience Store, and Six50, a fitness club.

Record western-suburb home sales have prompted retail developers to construct grocery-anchored shopping centers and big boxes, including the 78,592-sf Shops at Kirby Gate, anchored by Kroger, in Germantown and a 219,000-sf Wal-Mart Supercenter and a 175,000-sf Super Target in Cordova. Despite the new development surge, occupancy in these submarkets remains more than 90 percent, according to CB Richard Ellis.

Although the region already is home to several thriving malls, CBL & Associates has proposed a more than 800,000-sf open-air mall in DeSoto County, Miss. Cousins Properties' planned Carriage Crossing lifestyle center in Collierville, a far west suburb, has attracted Dillard's and Parisian department stores to its anchor positions. "With the entry of Parisian we should see more national retailers who have not entered the Memphis market take a good look in 2004," Ganesh says.

Reviving St. Louis

Health-care and biotech projects add vigor to weak commercial real estate markets.

Nicknamed the BioBelt, the St. Louis region for years has attracted numerous research and development companies, adding strength to the city's industrial market. The region's more than 17 million square feet of R&D space is expected to expand by 6 percent to 10 percent during the next year, as companies such as Sigma-Aldrich - which opened the 130,000-square-foot, $55 million Life Science Technology Center and redeveloped three of its manufacturing plants into the $5 million Life Science Production Center - construct new facilities.

But industrial isn't the only St. Louis commercial real estate market experiencing activity. A revitalization initiative has launched numerous multifamily, hospitality, and entertainment projects designed to help create a vibrant, 24/7 central business district.

Health Care Boosts Ailing Industrial Market

St. Louis' reputation as a health-care hotbed is helping the region's industrial market recuperate from a painful year of negative absorption and diminished occupancy rates.

The Milken Institute's August 2003 America's Health Care Economy ranked the St. Louis metropolitan area No. 13 on a national list of health-care-driven economies, beating out biotechnology hot spots such as San Diego, Seattle, and San Francisco. The report commended the area for its plethora of hospitals and nursing and personal-care facilities. Last year, civic planners announced initiatives to provide improved physical infrastructure for biotechnology companies relocating to St. Louis, including Technopolis, a 1,000-acre advanced technology research district, and a 180,000-sf commercial, office, and laboratory suburban research park.

Such recognition and government initiatives, combined with the city's renowned research universities and hospitals, are attracting numerous biotech companies. Solae Co., a soy-based food products maker, is consolidating its North American headquarters and research operations on the Nestlé Purina campus southwest of downtown. Wyeth BioPharma is undergoing a $230 million expansion of its manufacturing facility. Pfizer, which acquired Pharmacia Corp. in 2002, recently decided to maintain and potentially grow its R&D operations in St. Louis.

The area's infrastructure and prominence as a regional distribution hub also are improving its industrial market. For example, the 2,300-acre Gateway Commerce Center in Madison County, Ill., is exceeding performance expectations with the addition of Unilever's more than 1.2 million-sf distribution center; Hershey Foods is constructing another 1.1 million- sf facility at the business park.

Multifamily Fuels Downtown Revitalization

In 1997, a coalition of private and public sector representatives founded Downtown Now!, an organization aimed at raising the central business district's population and commercial appeal by revitalizing or constructing housing, retail, and office properties in several neighborhoods.

Despite this renewed optimism, downtown St. Louis' office market continues to falter. "I think we will look back to fourth-quarter 2003 as being the point that the market hit bottom concerning overall vacancy rates, concessions, and rental terms," says David Morris, CCIM, SIOR, of Colliers Turley Martin Tucker. Third-quarter 2003 vacancy in downtown's more than 12.4 million sf of office space was 20.1 percent, the highest vacancy rate in the metropolitan area, according to Colliers Turley Martin Tucker's St. Louis Office Market Report. The high vacancy rate, combined with increasing sublease space, has kept class A lease rates around $18 per square foot for the last four years, the report says.

But revitalization developments are boosting other commercial real estate markets, especially hospitality and multifamily. For example, using Missouri historic preservation tax credits, Historic Restoration, a New Orleans-based real estate development company, renovated the 1917 Statler Hotel and the 1929 Lennox Hotel, both on the National Register of Historic Places, into the $265 million Marriott Renaissance Grand convention hotel, adjacent to the America's Center in the city's Washington Avenue district. City officials credit the hotel for increased convention bookings through the next decade. Also in that neighborhood, Historic Restoration converted the 340,000-sf Merchandise Mart, a former 19th-century warehouse, into a mixed-use, mixed-income residential and retail property.

In the Laclede's Landing district along the Mississippi River, a private developer is planning the $20 million, 51-unit Water's Edge Condominiums. Another nearby development should add 26 more units to the area, which currently has few permanent residents.

City planners hope the construction of a $646 million St. Louis Cardinals ballpark and mixed-use village -- which would contain more than 400 residential units, 400,000 sf of office space, an aquarium, a baseball museum, and street-level retail -- scheduled to open for the 2006 season, will renew downtown vitality, as experienced in other similar-size markets such as Memphis and Cleveland. The Sports Center Redevelopment Authority, a public entity comprising city, county, and state officials, will own the park, which the Major League Baseball team is required to lease for at least 35 years