Local commercial real estate is defying the volatility of the economy
Published Tuesday May 16, 2023 11:07 am
GRAY – Despite a slowdown in transactions, concerns over banks’ reactions to stress from a string of bank failures and fears of inflation, the outlook for local commercial real estate is positive. Here’s the 30,000 foot view.
The region has experienced steady economic growth in recent years, leading to strong demand for commercial real estate. Commercial property vacancy rates in the region are currently low and this trend is expected to continue.
One of the main drivers of demand for commercial real estate in the Tri-Cities is the region’s strategic location. The area is at the crossroads of several major highways, making it a prime location for businesses that need to transport goods and services. In addition, the low cost of living and the high quality of life make the region an attractive travel destination for companies and professionals.
As the economy continues to grow and demand for commercial real estate in the Tri-Cities remains strong, it is likely that real estate values will continue to rise. This could present attractive investment opportunities for those looking to enter the commercial real estate market in the region.
The short-term view is more chaotic.
The Northeast Tennessee Association of Realtors (NETAR) April commercial market report and transaction tracker shows consistently negative numbers. But it’s not all bad news. For example, although the three-month trend comparison lagged behind last year, there has been steady growth since the beginning of the year. It’s one of those cases where progress is the decline in the rate of decline.
The most active sectors have been industrial, office, retail and apartment buildings, which remain at the center of a whirlwind that is consuming much oxygen in the local commercial market.
Jerry Petzoldt, chairman of the NETAR Commercial Committee, said the industrial sector is under increasing pressure. “It suffers from the same inventory shortage dynamics that we see in the housing sector. It leads to higher rents and prices for these industrial properties.”
Advances at the sub-market level are often overlooked but are important as small businesses are at the heart of the local economy. A local town’s retail status was gauged when the business development department took to the streets and conducted a small business inventory in mixed-use centers. John Rose, Kingsport’s director of economic development, said the tour of centers with two or more units counted 246. The icing on the tour of commercial real estate was that the occupancy rate of these centers was 91 percent.
So far this year, apartment buildings have recorded the most locally tracked transactions (28), followed by office (22) and retail (21).
Residential complex properties were active – both single-family and multi-family houses. Single-family investment property has declined over the past two years while housing and rents have risen, with more on the way.
Demand for apartment buildings and rental apartments has recently declined. Some apartment complexes that used to have waiting lists have removed this notice from their websites. Others offer new tenant incentives and referrals. And the response to some townhouse rental projects has resulted in only half the occupancy.
The region’s labor market remains robust and has so far shown no signs of slowing down. Consumers are more tight about their wallets, but not to an extent that worries retailers.
So far this year, active commercial inventory on NETAR’s Commercial Multiple Listing Service (CMLS) and Flex is down nearly 20%. New registrations fell by 37.6% and year-to-date by 21.8%.
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