MARKET SNAPSHOT: Memphis Investment Market Remains Tepid

Memphis, Tenn.—The Memphis apartment market is doing fairly well because of a lack of new construction, reports Sondra Wimbs, vice president and director of property management at Alco Management, which owns and manages about 2,500 units in Memphis.

Nearly 640 units are slated for delivery in 2012, the majority of which will be focused in the Germantown/Collierville submarket, according to Marcus & Millichap’s Memphis Metro Area 2011 Outlook.

The lack of home sales is also helping the apartment market, Wimbs tells MHN.

Occupancy market-wide is close to 95 percent, Wimbs notes, observing that the market is consequently lowering concessions.

Marcus & Millichap projects that asking and effective rents will increase 3.2 percent and 4.7 percent, respectively, in 2011.

The Memphis investment market remains quiet, with velocity slowing by 23 percent in 2010, according to Marcus & Millichap’s report, which adds that REO and distressed deals have mostly dominated the market. Last year, the median price for assets that traded hands was recorded at $12,000 per unit, a 33 percent year-over-year decline.

Meanwhile, the brokerage firm predicts that Class A and B deals will remain limited.

As the year progresses, however, cap rates are expected to stabilize between 7 percent and 8 percent for top-tier properties, while lower-tier assets will trade at cap rates beginning in the low-9 percent range.

While the latest metro unemployment rate (as of May 2011), according to the Bureau of Labor Statistics, was 10.1 percent, new hiring is expected to take place this year.

Later this year, for example, Electrolux is expected to break ground on a $190 million plant in the Whitehaven/Airport/Southhaven submarket, which is expected to create a number of construction jobs, which Marcus & Millichap projects will help lower vacancy 160 bps by the end of the year, according to its report. Once the facility comes online in 2012, it is expected to add 1,200 manufacturing jobs.

Additionally, Tennessee state officials recently announced a new job creation effort, Startup Tennesee, which is reportedly expected to launch between 50 and 70 companies every quarter in the state.