Taking stock of the commercial real estate market in Tennessee

Memphis is looking to jump start its CRE sector, and the outlook is promising.

In Tennessee's two largest markets – Memphis and Nashville – commercial real estate companies are finding that conditions have improved, but there is still a long way to go before they fully recover. Nashville appears to be seeing more robust growth, as indicated in a new report showing that 2013 had the most active second quarter since 2006. In Memphis, on the other hand, the going has been a bit slower, mainly due to the exodus of Pinnacle Airline Corp. from its downtown location.

Music City provides encouragement
The 178 transactions in Davidson County, home to Nashville, in the second quarter represented a 75 percent rise from last year at that time, according to a report from Chas. Hawkins Co. Inc./CORFAC International. That kind of growth is enough to make any commercial real estate agent lick their lips, and it certainly provides reason for optimism over the future of the Music City market.

At the same time, the total value of closings was down 5 percent, to a total of $169 million. Eighty-four percent of those 178 transactions were less than $1 million, and 73 percent were less than $500,000. So, while demand is high, the types of properties being moved are tending to fall on the lower end of the price spectrum.

"Activity and interest are up and obtaining capital is relatively cheap," said R. Stephen Prather, vice president of Chas. Hawkins Co. Inc./CORFAC International. "When you combine these things, you usually see an increase in values, which is generally what we are seeing in many submarkets of Nashville."

Memphis looking at CRE rebound
According to CB Richard Ellis' Marketview reports, Pinnacle's move played a major role in the loss of nearly 175,000 square-feet space in the Memphis market through mid-year 2013. But that bad news was offset by gains in other sectors, with the second quarter of 2013 marking the sixth straight month of positive absorption for retail space, dropping retail vacancy levels lower than they've been since 2006, and two large speculative industrial developments.

"Across all business lines of CBRE Memphis, we are experiencing activity that we have not seen since 2007," said Kevin Adams, CEO of CBRE. "The amount of investor interest and leasing activity in Memphis could energize our city's growth. The Mid-South is bustling and we look forward to what the future will bring."

Those factors have all contributed to commercial real estate brokers across the region believing that the immediate future of the industry in Tennessee is a bright one.

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