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QUARTERLY NEWSLETTER Memphis MSA First Quarter 2020 This newsletter is designed as a basic snapshot of the Memphis commercial real estate market for 1Q20. Some figures are interpolated and estimated due to variances between information sources. VALBRIDGE PROPERTY ADVISORS | Memphis 756 Ridge Lake Blvd., Suite 225 Memphis, TN 38120 Phone: 901.753.6977 www.valbridge.com
Prepared by: Austin Cole
QUARTERLY NEWSLETTER | MEMPHIS 1Q20
Follow Us Online:
www.valbridge.com | 901.753.6977
COVID-19 and the Memphis CRE Markets Essentially all of the data reported in this edition of our newsletter was collected prior to the COVID-19 outbreak. The figures shown should be viewed primarily as a basis to gauge changes as our markets react to the closing of the economy and the phased reopening that is ongoing as of our date of publication. The impact of the pandemic on CRE may not be fully realized for some time. Since early March, we have been conducting interviews with many market participants regarding COVID-19. These include brokers, leasing agents, real estate attorneys, contractors, bankers, mortgage brokers, property managers, and property owners. A summary of the responses from the first weeks of the episode were as follows:
Some sales and leases have been put on hold while others moved to the closing; Some buyers and tenants have put pending deals on hold for 30 to 60 days; New listings of properties are being seen but the volume has slowed; In general, asking prices are not being reduced and concessions are not being promoted; Sellers believe this to be a temporary event and see no need to sell at discounts; Some tenants are seeking rent relief vs. closing their business; Landlords are actively working to keep their tenants as normalcy returns; Most developers view this as temporary and will move forward with projects; Lenders are offering short term payment deferments, interest only and other options; Deal velocity (sale and leasing) is expected to be low over the next 60 to 90 days; Restaurants, hotel/motel and retail have been impacted the most and will have extended recovery
periods; The Memphis MSA is in Phase II of reopening the economy and that is expected to move to Phase III by mid-June. Many other major markets are at the same point in the process. We project improvement in leasing and sale volume based on our more recent, follow-up, interviews. According to GlobeSt.com, about 40 real estate economists and analysts expect the recession caused by COVID-19 to have a lesser impact on CRE than the 2008 recession, hotels and retail excluded. Many analysts expect office demand to shrink as employees will continue to work from home. Our sources echo this sentiment and we are seeing transaction volume improve as we near Phase III of reopening. At this stage, there is inadequate market data to quantify any long-term impact on values for most properties. Nearly every respondent believes this to be a temporary situation that will improve by 3Q20 or 4Q20. For that reason, we do not expect to see measurable discounts in pricing and rents in the short term, but we do expect marketing and exposure times to be extended. Other factors we will consider in our analyses are the potential rent and collection losses, increased vacancies, extended lease-up periods and greater risk.
COVID-19 Risk Assessment Report Valbridge Property Advisors offers property risk assessment services to help measure the potential impact of uncertain market conditions on all types of commercial real estate. Our property risk assessment analysis provides insight into baseline aspects concerning current market conditions, occupancy and market factors while considering the inherent qualities of subject properties. The VPA risk assessment combines market analyses and site inspections with the Moody’s Analytics Commercial Location Score - an advanced quantitative method of commercial real estate evaluation using data from REIS, Inc. The resulting data is used to develop a unique, site-specific Valbridge Risk Score. This score can be used to make informed, real-time decisions regarding CRE investments. For more information or a sample of this product, please contact us.
QUARTERLY NEWSLETTER | MEMPHIS 1Q20
Follow Us Online:
www.valbridge.com | 901.753.6977
Retail – Snapshot
Asking rents in the Memphis MSA have increased by 7.7% from 1Q19 Overall occupancy rates remained stable across the MSA.
Office – Snapshot
Class A and Class B occupancy rates remained stable across the MSA The Class A East Memphis Office gained 3% in occupancy over 1Q19.
Industrial – Snapshot
The Memphis MSA has over 13,000,000 sf under construction. Nearly 2,000,000 sf was delivered in 1Q20.
Multifamily – Snapshot
Overall occupancy for the Memphis MSA remained stable from 1Q19. The Memphis MSA had 840 units under construction & 500 units delivered during 1Q20.
Market MSA Cville Cordova East Gtown Olv Brnch Sthvn
Occupancy 96% 96% 95% 97% 95% 97% 96%
Asking Rent $14.00 $18.00 $16.50 $18.50 $23.00 $17.50 $14.00
Shopping Center Data - CoStar & Valbridge
Market Occupancy Rent Occupancy Rent
Memphis MSA Office 91% $21.00 90% $18.00
East Memphis Office 93% $27.75 88% $19.25
385 Corridor Office 90% $19.00 96% $21.50
Class A Class B
Class A & B Office Data - CoStar & Valbridge
Market Occupancy Rent Occupancy Rent
Memphis MSA Industrial 93% $3.50 91% $7.00
Southeast Industrial 91% $3.00 89% $6.00
Desoto Industrial 95% $4.00 92% $7.00
Warehouse Flex
Warehouse & Flex Data - CoStar & Valbridge
Market MSA Frayser Collierville Downtown Midtown Southeast East Memphis
Occupancy 89% 79% 96% 94% 91% 84% 89%
Rent/Unit $850 $620 $1,290 $1,260 $885 $695 $780
Under Const/Unit 840 N/A 0 150 200 0 175
Deliveries 500 0 0 0 490 0 0
Apartment Data - CoStar
QUARTERLY NEWSLETTER | MEMPHIS 1Q20
Follow Us Online:
www.valbridge.com | 901.753.6977
Cap Rates – National
According to the Situs Real Estate Research Corporation (RERC) “Real Estate Report” and PricewaterhouseCoopers (PwC) “Real Estate Investor Survey,” cap rates have trended downward in nearly every category.
Cap rates ticked down slightly compared to 1Q19. The rates shown below apply to modern Class A properties with occupancy by creditworthy tenants, good to excellent locations, and/or contractual rent growth.
Cap Rates – Net Leased
Cap rates for office and retail properties remained stable while industrial properties took a slight decrease in 1Q20. The overall cap rates for all properties have remained relatively stable in the first quarter.
According to The Boulder Group, the majority of net lease participants expect stable cap rates in the near term.
Commercial Sale Volume & Pricing
According to Chandler Reports, LLC sale volume is up in every category except industrial (unchanged).
Low High Average
Retail Strip Center 4.5% 7.3% 5.9% Increase
Suburban Office 4.3% 7.5% 5.9% Increase
Flex Industrial 6.1% 7.5% 6.8% Increase
Warehouse 3.6% 6.0% 4.8% Increase
Apartment 3.5% 7.0% 5.3% Decrease
Average for All Properties 4.4% 7.1% 5.7% Increase
National Rates - Situs RERC & PWC
Property
Cap Rates Value Trend From Prior Qtr
Property 1Q20 4Q19 Change from Prior Qtr
Retail 6.15% 6.07% Stable
Office 7.00% 6.94% Stable
Industrial 7.05% 6.90% Decrease
Average for All Properties 6.73% 6.64% Stable
Net Lease National Asking Cap Rates - The Boulder Group
YTD through 2020 2019 % Chng
Retail 83 58 43.10%
Office 48 24 100.00%
Industrial 36 37 -2.70%
Multi-Family 33 17 94.12%
Land 44 53 -16.98%
Total Transactions 244 189 29.10%
Average Sale Price/Sale $1,485,426 $1,552,081 -4.29%
Commercial Sales - Shelby County
QUARTERLY NEWSLETTER | MEMPHIS 1Q20
Follow Us Online:
www.valbridge.com | 901.753.6977
Single Family Home Sales & Prices
According to the Memphis Area Association of Realtors, total sales volume and average sales price increased in 1Q20 compared to 1Q19 in Shelby, Fayette & Tipton Counties.
Overall, the market has shown improvement in existing and new home sales compared to 1Q19.
Lot Supply & New Home Data
Lot supply has declined over 40%, and new home permits have increased slightly from March 2019 according to MarketGraphics Research Group, Inc
Employment
As of 1Q20, the unemployment rate for the Memphis MSA is 4.2%, which is a nominal increase from 4Q19, according to The Bureau of Labor Statistics – Year to Date – National & State Seasonally Adjusted.
YTD through 1Q20 1Q19 % Chng YTD through 1Q20 1Q19 % Chng
No. of Sales 3,988 3,829 4.2% No. of Sales 210 202 4.0%
Avg. Price $172,678 $159,207 8.5% Avg. Price $377,538 $368,592 2.4%
$ Volume $688,638,535 $609,603,603 13.0% $ Volume $79,282,910 $74,455,584 6.5%
Existing Home Sale Statistics - MAAR.org New Home Sale Statistics - MAAR.orgShelby, Fayette & Tipton Counties Shelby, Fayette & Tipton Counties
12 Months through Mar-20 Mar-19 Chng % Chng
Developed Lots 5,078 7,293 (2,215) -43.62%
New Home Permits 3,000 2,894 106 3.53%
Yrs. Supply 1.69 2.52 (0.83) -49%
MarketGraphics Research Group, Inc.
Lot Supply & Housing Permits - MSA
Period Ended Mar 2020 2017 2018 2019 2020
Inventory 1,024 1,116 1,226 1,419
NEW HOME INVENTORY - MSA
County Mar-20
Crittenden 6
DeSoto 1,240
Fayette 387
Shelby 652
Tipton 131
Totals 2,416
Trailing 12 Mos. Starts
Area YE 2013 YE 2014 YE 2015 YE 2016 YE 2017 YE 2018 YE 2019 YTD 2020
Memphis, MSA 7.6% 6.8% 5.4% 4.9% 3.7% 3.7% 3.9% 4.2%
Shelby County, TN 7.9% 7.0% 5.3% 5.1% 3.6% 3.6% 3.7% 4.3%
Tipton County, TN 8.5% 7.7% 6.1% 5.3% 3.9% 3.6% 3.6% 4.3%
Fayette County, TN 8.1% 6.6% 5.5% 5.1% 3.6% 3.3% 3.5% 3.8%
Crittenden County, AR 7.4% 7.1% 4.7% 4.2% 4.1% 4.0% 3.6% 5.2%
DeSoto County, MS 5.3% 5.0% 4.7% 3.8% 3.2% 3.7% 4.4% 4.1%
Marshall County, MS 9.0% 7.5% 6.8% 5.1% 4.4% 4.7% 5.9% 5.1%
Tunica County, MS 11.6% 11.9% 8.5% 7.2% 5.1% 5.3% 5.8% 5.8%
Tate County, MS 8.0% 7.6% 6.6% 5.2% 4.5% 4.6% 5.8% 5.1%
Benton County, MS 9.5% 8.4% 7.3% 5.6% 5.0% 5.3% 6.6% 5.7%
Unemployment Rates
QUARTERLY NEWSLETTER | MEMPHIS 1Q20
Follow Us Online:
www.valbridge.com | 901.753.6977
About Valbridge Property Advisors | Memphis
Valbridge Property Advisors | Memphis provides independent property valuation and consulting services, including advising clients on real estate business and investment decisions such as buy-sell-hold and lease-own alternatives. In today’s highly scrutinized regulatory environment, our independence—including from real estate brokerage firms—provides our clients with a credible and reliable result. Our clients benefit from the collective strength of Valbridge Property Advisors, one of the largest commercial real estate appraisal firms in the U.S. Valbridge Property Advisors | Memphis is led by a MAI designated member of the Appraisal Institute. Our firm and its professionals offer more than 150 years of combined real estate experience. We provide appraisals, consulting, market studies, and feasibility analyses within the Memphis MSA and surrounding counties. The firm has expertise in multifamily, land, retail, commercial, medical, religious buildings, land development, single and multi-tenant buildings, office, hotel/motel, special use, industrial properties, and many other properties.
CONTACT US Contact us today at 901.753.6977 to experience the Valbridge difference. Sr. Managing Director Todd Glidewell, MAI [email protected] Managing Director Cary Crain, MAI [email protected] Director Andrew Trott, MAI [email protected] Senior Appraiser Dana Richardson [email protected] Senior Appraiser Hugh Greer [email protected] Senior Appraiser Craig Johnson [email protected] Appraisal Analyst Austin Cole [email protected] Office Manager Martha Dungy [email protected]
DATA SOURCES Apartment Association of Greater Memphis, Bankrate.com, Bloomberg.com, Bureau of Labor Statistics, Chandler Reports, LLC, CoStar Group, Inc., Insight Economics, Memphis Area Association of Realtors, PwC, MarketGraphics, Situs Real Estate Research Corp., The Boulder Group, RealtyRates.com, TN Dept. of Labor, Valbridge Property Advisors © Copyright 2020 Valbridge Property Advisors | Memphis. ALL information herein was obtained from third parties. The accuracy of the data is not verified, warranted or guaranteed. For the exclusive use of Valbridge Property Advisors | Memphis. Reproduction or distribution without consent is prohibited.
