News Article | 7/25/2008

FedEx Ground subsidiary SmartPost selects DeSoto County for 21st distribution center

FedEx SmartPost, a subsidiary of FedEx Ground, signed a 150,527-square-foot lease with Hillwood Investment Properties at DeSoto Trade Center Building Three in Southaven.

Originally founded in 1998 as Parcel Direct, FedEx Corp. purchased FedEx SmartPost in 2004 from Quad/Graphics, Inc., for $120 million.

The company consolidates and delivers high volumes of low-weight, less time-sensitive packages to residences, using the U.S. Postal Service for final delivery. SmartPost only accepts packages up to 70 pounds.

Colliers Wilkinson Snowden chairman Dan Wilkerson, Colliers Management Services LLC president Brad Kornegay and The Burnette Co. owner Richie Burnette represented the landlord, Hillwood. Fred Placke, senior vice president of Fischer & Co., was the tenant representative.

“In today’s market, it’s very exciting when you can make a 150,000-square-foot lease with a national company,” Wilkinson says. “I guess it’s an indication of the vitality of the North Mississippi market, that they, after looking at everything, made the choice to go into that particular building.”

The 522,066-square-foot building at 4325 Executive Drive was built in 2006.

FedEx SmartPost has 20 distribution centers and averages more than 600,000 packages daily. Most of its business comes from online retailers and catalog companies.

“Obviously, having FedEx as a tenant in your park is great,” says Jim Mercer, executive vice president at CB Richard Ellis Memphis. “Just the fact that they’re still out there growing is a positive sign.”

The DeSoto County submarket’s 18.6 million square feet of industrial space has a vacancy rate of 24.8%, according to CB Richard Ellis Memphis’ Industrial MarketView report for first quarter 2008. Bulk warehouse space comprises 17.7 million square feet of that total.

“Over the past few years, you’ve seen more speculative space being in built in DeSoto County than Shelby County,” Mercer says. “I think what has happened is that over the past few years, you’ve had more product come online down there, so the vacancy has gone up accordingly.”

The Southeast Memphis submarket’s 65.5 million square feet of space has a vacancy rate of 14.6%.

DeSoto County has more available land, which has helped spur more speculative building over the past few years, according to Mercer.

Industrial Developments International’s 800,308-square-foot Crossroads Distribution Center Building F in Olive Branch accounted for the only new construction in the overall Memphis industrial market, according to the first quarter report. It’s the latest in a series of speculative industrial buildings in DeSoto County.

“That vacancy is higher because of that,” Mercer says. “It’s a combination of the market slowing at a time when some of this product was delivered on the market.”

That said, the vacancy rate hasn’t historically been that high and it probably won’t continue, according to Mercer.

“I think it will continue to be whittled down by these type of leases and by developers slowing their construction until that vacancy drops a little bit,” Mercer says.

Mercer doesn’t see any new deliveries through the end of the year, although activity could pick up in 2009.

Several large spaces opening up has led to a temporary halt in construction.

Hewlett Packard Co. plans to pull out of 2.2 million square feet of space in the Southeast Memphis submarket by February. The company will remain in 708,532 square feet in Summit Distribution I.

In Southaven, Kuehne + Nagel, Inc., is looking to sublease 865,120 square feet in DeSoto Trade Center, Building Five.

The current market favors tenants looking for large blocks of space, Mercer says.

“I think there are more options to choose from,” Mercer says. “That will continue to keep rates lower. You’re just not able to raise rates when you have a handful of buildings that people can choose from.”

The average asking lease rate for bulk warehouse space in DeSoto County is $2.33 per square foot in the first quarter 2008, down from $3.13 per square foot in the first quarter 2007.

The average asking lease rate for bulk warehouse space in the Southeast Memphis submarket is $2.57 per square foot in the first quarter 2008, which is relatively flat compared to $2.47 per square foot in the first quarter 2007.

However, the vacancy won’t affect potential tenants looking for smaller space, Mercer says.

The average asking lease rate for standard warehouse space is $3.46 per square foot in DeSoto County, and $2.36 per square foot in Southeast Memphis.

“I don’t think we’re seeing the softening of rental rates in spaces 100,000 square feet and below that you’re seeing in the 400,000-500,000 square feet and above,” Mercer says.

FedEx SmartPost

Package delivery

HQ: New Berlin, Wis.

President and CEO: Ward B. Strang

Employees: 1,700

Phone: (262) 796-6800

Web site: