After Memphis ranked among the nation’s apartment performance laggards for a very long time, local conditions improved in the 2018-2019 time frame. That momentum continued in the past year.
There wasn’t necessarily any one thing that sent Memphis moving on a different path in the latter years of the past decade. Instead, employment growth continued to proceed at a moderate pace, and that expansion eventually produced enough housing demand to exhaust the available inventory, given that building never ramped up.
Today’s job count in Memphis is off the pre-pandemic high by a fairly small figure of roughly 2.5%. The employment deficit is limited to about 16,000 jobs. Thus, the local economy is healing faster than is typical for the nation as a whole.
Low costs help make Memphis a product distribution hub for the eastern half of the country, and that’s a segment of the economy that has held up well. FedEx is a big deal locally. The company has its biggest package sorting hub on the southside of Memphis, at the edge of the metro’s airport.
Rent Growth is Impressive
The stand-out performance metric for metro Memphis is certainly the recent rent growth level. After annual change in effective asking rents had averaged about 4% in 2018-2019, year-over-year growth accelerated to 5.6% as of December 2020.
Pricing surged by 7.3% during the past year in the stock of Class B product, while increases came in at 5.3% in Class A projects and 3.6% in Class C communities.
Helping push rent growth in Memphis to the next tier of performance of late, there’s been nearly no new product moving through initial lease-up. Completions in calendar 2020 were at a decade-low level of roughly 400 units. New supply will remain limited in the near term, as only about 2,400 units are under construction.
The metro’s December 2020 occupancy rate came in at 95.9%, up 100 basis points year-over-year.
The East Side Looks Good
Those looking to deploy capital in Memphis are likely to look first at the metro’s comparatively upscale east side suburbs. The biggest block of the area’s Class A stock is located in the Germantown/Collierville neighborhood, and there’s a good mix of Class A and B communities in the adjacent Cordova/Bartlett submarket.
Even when the metro’s overall performance struggled historically, these two neighborhoods tended to post solid results.
The limited construction that has occurred in metro Memphis during the recent past mainly has gone to the Germantown/Collierville submarket. Right now, however, ongoing development is heavy on small in-fill properties in more urban Midtown Memphis.
As with most small metros, limited liquidity is a downside risk for those investing in Memphis apartments. The list of firms active in the area is relatively short, and almost all of them are either local or regional in focus. Thus, there aren’t lots of potential buyers when it comes time to dispose of an asset.
Of course, Nashville – Tennessee’s other key market – was ignored for a long time too, and now it ranks among the favored spots for a significant block of national investors. There’s some possibility that those who are newly active in Nashville might consider jumping over to take a look at Memphis as well.
For more on the metros that have shown resilience throughout the COVID-19 pandemic, watch the recent webcast: Up Close and Local: New and Improved Markets.