Commercial real estate gains momentum despite June slump

The local commercial real estate (CRE) market continues gaining momentum despite a June transaction decline. The decline from May was the steepest drop in the past three years. But it is not representative of the mid-year trend. 

Reasons vary, but most of the decline is a return to pre-pandemic transaction levels in the Retail-Commercial, Industrial and Office sectors. Transactions in those sectors began building late last year as investors and business owners began preparing for the post-pandemic economy. They spiked again in March, April and May this year.  

Transactions averaged 30 a month in 2019 and 31 a month in 2020. At mid-year, they are averaging 42 a month and the 3-month moving average is 45.  

There were 28 transactions in June, up from 21 June last year.  During the first half of the year, there were 254 transactions. Last year there were 162. Since that comparison is skewed by last year’s pandemic economy a comparison to the first half of 2019 is a better example of how well today’s CRE market is doing when compared to a typical year.  Mid-year transactions this year were 24.5 percent better than the first half of 2019. 

“There’s actually a lot more activity in the commercial sector than the data show,” according to Cassie Petzoldt, Northeast Tennessee Association of Realtors (NETAR) Commercial Committee Chair. “The volume of investor inquiries, commercial construction and optimism is running high. Several commercial Realtors report the market is the busiest they have ever seen.” Activity in the industrial, office space, the retail sector and vacant land continue to grow as businesses and investors ready for a post-pandemic economy, she added. 

The local labor shortage is also a headwind for many businesses – especially restaurants and retail outlets. Tri-Cities employers are adding new jobs at an average rate of 560 a month so far this year. At that rate, it will take 10 months to return to a pre-pandemic level.  

The only sector where transactions increased from May was commercial vacant land. They were up by one. They have averaged four closings a month so far this year. There were also nine new listings for commercial vacant land in June.  

Combined with vacant residential land sales commercial vacant land closings totaled 228 in June. That’s up 58 percent from last year and a little more than 80 percent higher than the first six months of last year.  

Even though Office and Retail-Commercial sectors declined in June, they led transactions for the first half of the year. So far this year, there have been 44 office sales and leases, five more than last year. Forty-two Retail-Commercial deals were completed during the first half of this year, up from 24 last year. 

Active inventory made a slight gain over May but was down 7.7 percent from June last year. The year-over-year decline can be attributed to the surge of transactions during the first five months of this year absorbing some of the excess inventory. 

There were 78 new listings, up from 43 last year. During the first six months of this year, there have been 410 new listings, up from 309 last year.