We’re halfway into 2022, and both the local residential and commercial real estate markets continue robust performance despite headwinds. Interest rates are increasing, inflation is at a 40-year high, the global economy is turned upside down by Russia’s war against Ukraine, supply chains remain tangled, and there are increasing signs of an impending recession. Still, May’s local commercial real estate transactions were up almost 17% from last year. 

Some commercial reports note that the interest rate climate is giving investors pause about new projects and developments. So far, that hasn’t shown up here. Much of the attention focused on our region is from investors expanding their reach from secondary to tertiary markets. They’re exploring the potential for better profits even though the risk margins are higher than the primary and secondary markets. And there are some growth hot spots in NE Tenn and SW Va. that they find interesting. 

For example, Johnson City, Kingsport, and the Twin Cities of Bristol, Tenn., and Bristol, Va. are in the crosshairs for potential population and job growth.  

Neither of the region’s two metro areas was as strong as the National Association of Realtors®’ Commercial Real Estate Conditions Index. But NAR researchers posted a telling footnote to the report about the region. It said the overall economic conditions in both are stronger than they were nationally. 

Another telling item was the Kingsport-Bristol metro area’s industrial property sector status. It was rated as stronger than that sector is nationally.  

Industrial transactions have been higher on the Northeast Tennessee Association of Realtors®’ Commercial Real Estate Report for a year and a half.  

So far this year, the region’s completed industrial sales or leases are slightly less than last year or the year before. Much of that decline can be attributed to the lack of suitable inventory. That’s especially true of warehouse inventory. According to a study by the TCI Group, there has been a lack of new warehouse construction for over a decade. And that void comes at a time when there’s increasing pressure, and costs, on the last-mile delivery capacity. 

A recent study by Deloitte said that 53% of the total cost of getting a product from the manufacturer to the consumer is being gobbled up in last-mile fulfillment. It also said the last-mile fulfillment account for 41% of the local logistical costs. 

Commercial Realtors® say they could be doing more industrial and warehouse deals if the region had more inventory. It’s the same thing residential Realtors® say about the existing home market. 

According to NETAR’s May report, the total active commercial inventory is down 18.8% from last year, and the new listings inventory lags last year’s growth rate by 5.5%.