Memphis retail market returns to pre-pandemic standards


Topgolf expands to West Tennessee for the first time with a new location in the Memphis suburb of Germantown. The venue will be the fourth volunteer location in the state for Topgolf. The Dallas-based retailer is one of many expanding concepts in Memphis. (Image courtesy of Topgolf)

Memphis has seen a tight retail market for quality space and development opportunity since the COVID-19 pandemic. Our market has a vacancy rate of 3.5%, according to CoStar Group analysis, and overall retail leasing activity is strong. Memphis has benefited from a consumer base ready to return to pre-pandemic rhythms of life.

Retail sales were healthy overall, with strong increases in restaurant sales, particularly drive-thru restaurants. Rents for high-demand space have risen accordingly given the lack of quality opportunities for new-to-market or expanding retailers.

Jon Isbell, TSCG

Investment sales activity was steady with an average capitalization rate of around 7%, according to CoStar. Well-located and stable malls are trading lower. A handful of top-tier institutional assets are either in the market or about to be, and we expect them to trade at cap rates below 7%.

Ford Motors and SK Innovation’s new electronic vehicle (EV) and battery production facility in Stanton, Tennessee (25 miles east of Memphis) is expected to have a positive impact on the local economy. The $5.6 billion mega-campus, called Blue Oval City, will create approximately 5,700 new jobs at its plant, with several thousand more indirectly to be added through the investment. The effect of this retail project is expected to be felt most strongly in surrounding municipalities, such as Arlington and Lakeland, Tennessee. Ford and SK Innovation plan to begin production at the new facility in 2025.

We have seen new to market concepts such as Topgolf, Whataburger, Big Bad Breakfast, Fabletics, Lovesac, Chase Bank, Gordon Food Service, popshelf, Tesla and buybuy BABY open or announce locations over the last 12 months. Starbucks continues to expand, and new coffee franchise concepts, such as 7 Brew and Biggby, have signed leases in recent months. Increasingly, restaurants and cafe concepts require drive-throughs and compete for the few high-quality opportunities that are brought to market.

Downtown Memphis is seeing a major boost in its abundance of development activity, including several apartments under construction and in the planning stages, as well as the completion of the Renasant Convention Center renovation and the $61 million renovation dollars from Tom Lee Park. Tourism is expected to see an uptick thanks to increased capacity at the recently renovated Memphis International Airport, as well as an increase in hotel supply.

Breweries such as Wiseacre, Grind City and Soul and Spirit have all opened production facilities with gathering spaces for tasting rooms in recent years. The redevelopment of One Beale by Carlisle Corp. drew attention to the local hospitality industry, including the additions of Hyatt Centric, Caption by Hyatt (opening soon) and the Grand Hyatt (construction to begin in the coming months).

On the local dining side, Slim and Husky’s opened its first location near downtown, Andrew Ticer and Michael Hudson opened their third restaurant concept, Bishop, in the South Main District. St. Jude is in the midst of a $1 billion expansion with another $8 billion planned. Overall downtown and downtown retail vacancy is 3.6%, according to CoStar.

East Memphis and Germantown are also experiencing a tight retail market with vacancy rates around 3.2% and 1.7%, respectively. Vacancies on our main shopping streets, Poplar Avenue and Germantown Parkway, are rare, and many new-to-market concepts struggle to find quality opportunities.

The same story is true in Southaven and Olive Branch, Miss., both considered part of the Memphis MSA. Silo Square in Southaven has opened with a great range of restaurants and retail outlets, and new suburban retail development is underway in Olive Branch, as well as growing markets like Arlington and Lakeland.

Germantown, Tennessee, an affluent suburb of Memphis, will see a major redevelopment of the Carrefour Mall into an upscale, mixed-use project. Billy Orgel and his partners recently purchased the center for $16 million with the intention of removing existing improvements and building residential, retail, office and hotel space. Also in Germantown, local developer Spence Ray is working on the fourth phase of his mixed-use project, Thornwood, with the addition of more upscale apartments.

Construction of 710,000 square feet of new retail space underway in the Memphis MSA pipeline represents less than 1% of current inventory. Coupled with rising construction costs and the difficulty of securing rent realization, our market should not be ready for an oversupply problem.

Other challenges in the local economy are indicative of the broader economy, such as labor shortages, wage increases, inflation, supply chain, and construction costs. The challenge for retail developers is finding quality sites, especially for retailers that need street frontage and drive-thru opportunities.

— By Jon Isbell, Vice President, TSCG. This article originally appeared in the July 2022 issue of Southeast real estate company.


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