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Absorptions of industrial, office, retail spaces solidly higher over last year

Stronger economy expected to help commercial market

The National Association of Realtors (NAR) predicts that an upswing in the U.S. economy will lead to general strengthening of commercial real estate sectors over the next two years.

“The improving economy in the United States has been creating jobs, and those jobs have been increasing the demand for commercial real estate space,” said David Lereah, NAR’s chief economist. “There’s been continued strengthening in the net absorption of commercial space this year, with absorptions of industrial, office and retail spaces solidly higher compared to 2003.”

Lereah said the growing demand for commercial real estate space, which generally follows later in the cycle of an economic recovery, will improve cash-flow in the commercial sectors with rent growth projected to follow. Overall rent gains in 2005 are expected to be followed by even stronger gains in 2006, although growth in industrial rent is expected to grow at a slower pace given a large volume of new construction.

Commercial real estate specialists in Mississippi are also upbeat.

“The commercial market is driven by capital expansion,” said Phillip Carpenter of Carpenter Properties in Jackson. “If companies are making money, then they look more favorably on spending some of that money to expand their output. The economy certainly seems to be improving. We think as the economy improves, the number of expansions will grow.

Hopefully, the Jackson market will benefit from that.”
Carpenter said there is currently a tremendous amount of retail construction taking place both in Madison County along the I-55 corridor and in Rankin County along Lakeland Drive. He anticipates that will continue for the next several years. Industrial activities in the past 18 to 24 months in the metro area have been driven almost exclusively by Nissan and its suppliers.

“I would anticipate that level of activity will increase,” Carpenter said. “Nissan has been open for a little over a year. They are becoming more efficient, and the learning curve of new employees in that industry has picked up. Nissan is expected to be able to increase its output as a result of that. If the demand goes up, Nissan suppliers will see it is more beneficial to locate manufacturing or distribution facilities closer to the Nissan plant to accommodate their needs.”

Continuing a present trend, the strongest demand for office space in the metro area is expected to be along I-55. Carpenter said as suburban sprawl continues, the ease of getting to and from the office from home is still important to decision makers.

“I think we will continue to see increased demand for suburban office space,” Carpenter said. “And I also have hopes that downtown Jackson will experience a renaissance. There are a lot of folks who have pinned their hopes on seeing some things happen in downtown Jackson. I think it is important for the metro area and the state to have a viable downtown market.”

A boom in commercial real estate in Tupelo and surrounding areas is already well under way, says Duke Loden, director/broker, Century Commercial Real Estate Services, Tupelo.

“It has already improved here,” Loden said. “We have had a great 2004. And the outlook for 2005 is also great. Tupelo and Northeast Mississippi have had a tremendous 2004.”

Currently under construction in the mall area is a 178,000-square-foot Scruggs Farm and Lawn Garden Supply, a retail outlet that will be similar to a Bass Pro Shop. New food service establishments under construction in Tupelo include an Abner’s Famous Chicken Tenders, Olive Garden and Cold Stone Creamery, an ice cream store.

Other retail under construction includes Ashley Furniture and a new Hancock Fabrics. The most recent retail announcement is for a 20,000-square-foot Best Buy store, a computer and electronics store.

Loden said another trend in Tupelo is that some of the older fast food restaurants are building new restaurants and changing locations. A new Wendy’s and a freestanding Starbucks have been built on West Main Street. In the downtown Fairpark District, the new City Hall and one office building are complete, and three more are planned. Another major development in the works is the Hilton Garden Hotel and Convention Center that will be constructed next to the coliseum.

“The downtown has had a good year, and all that construction will happen in 2005,” Loden said. “In 2005 we will finish up some streets and buildings under construction. Sales tax collections will pick up once all of these stores across the city are open. Employment will grow.”

According to the Community Development Foundation, commercial development is already up 18.5% over all 12 months of a year ago. However, industrial leases and sales of existing space have been a little slow.

“I don’t really foresee industrial picking up that much in 2005, except for some new design-build facilities,” Loden said.

On the Mississippi Gulf Coast, there continues to be new commercial development along the I-10 corridor at the I-110 exit at D’Iberville, the new Hard Rock Casino and Hotel is under construction, and Isle of Capri is adding a 400-room hotel. A major expansion of the Gulf Coast Convention Center has been approved.

Retail on the Gulf Coast is running at 92% to 95% occupancy for 2004, said Brooks Holstein, owner of Convest Properties, Biloxi.

“There is not a lot of new inventory in the pipeline,” Holstein said. “There are some single-tenant free-standing retailers that will be coming on line in 2005. But, to my knowledge, there won’t be an announcement of a major new retailer with the exception of the possibility of Target finally making a commitment to the Gulf Coast.”

Currently, there is a Target store in Jackson, a new one in Flowood and one under development just west of the Turtle Creek Mall in Hattiesburg.

Holstein believes rents for retail are going to continue to escalate particularly in what the industry calls “shadow centers” around new or existing Wal-Mart Supercenters.

“Wal-Mart Supercenters continue to redefine retail trade areas throughout South Mississippi,” Holstein said. “A proven point most recently is Wiggins where in addition to the free-standing Wal-Mart Supercenter, there is a Popeye’s and a shadow center that contains 10,000 to 15,000-square-feet anchored by Movie Gallery.”

There is a 60,000-square-foot Grand Theater under construction at I-10 and I-110 in D’Iberville being developed by Encore Enterprises. An Outback Steakhouse is also being constructed in that area that includes a Wal-Mart Supercenter.

Ocean Springs-based freelance journalist Becky Gillette writers regularly for the Mississippi Business Journal. Contact her via e-mail at bgillette@bellsouth.net.

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