Investors keep local commercial real estate market buzzing
GRAY, TN – February was the second straight month commercial transactions have been stagnant when compared to last year. But there’s background activity that the public never sees or hears about. In fact, it accounts for a major part of the economic development happening outside governmental economic development efforts.
Unlike the local residential real estate market, the commercial market sees fewer frequent transactions. It’s also less likely to parallel national trends, according to Northeast Tennessee Association of Realtors (NETAR) Commercial Chair Jerry Petzoldt.
Our commercial market character is so different from the national market that local sectors may or may not reflect what’s happening on the national scene, he said.
There were 34 commercial sales and leases during February – the same number as the previous month. That puts the year-to-date total 9 percent behind last year.
Office, retail, multi-family, and vacant land deals were top transaction areas. None of the differences from last year’s market performance are remarkable. Only vacant land had a higher volume.
Multi-family was the February transaction board leader, and most deals were for smaller properties. That doesn’t mean the large apartment complex market has slowed. ValCap recently posted an ad for a local property manager. The firm has bought land for new developments and has an ongoing upgrade of its aging local apartment communities.
Bodka Creek Capital also recently purchased the Retreat at Meadowview. The two-year-old operator/private equity firm plans to add 48-60 units to the high-end Kingsport community.
Another indicator of the growing strength of the commercial housing market is the sale of and vacancy rate for single-family rentals. So far this year, 25 sales have closed, up 150 percent from last year. The current vacancy rate for single-family and condo rentals is 2.8 percent. The region has the second tightest multi-family and single-family rates in East Tennessee.
The rental market’s growth parallels a national trend of wealthier residents who are more likely to rent. Nationwide, the number of people making $150,000 a year or more who are renters has increased 87 percent, according to the Census Bureau.
So far this year there have been 11 office transactions. It has consistently been at the top of the local sales and lease leaderboard. Demand remains constant.
According to a NAR report, suburbs, and smaller metro markets continue to attract movers and boost the office sector. The most current NAR report says the Kingsport-Bristol metro area has a 5.7% office vacancy rate. Knoxville’s rate is 5.6%. The Johnson City metro market did not meet the market size benchmark for the study. It’s another example of how the Tri-Cities presents to the commercial marketplace is thwarted by the division of the region into two MSAs.
Retail has replaced office for transactions during the first two months of this year as consumer spending defies inflation. According to Harvard’s Economy Insights data page, consumer spending for the period between Jan. 2022 and January this year has increased by double digits in all Tri-Cities area counties. The biggest increase is in Carter Co. – up 44 percent.
According to NAR, “the growth in brick-and-mortar stores will be driven by smaller shops in neighborhood centers. The trend is clear. Due to remove-work policies, neighborhood stores are on the rise, and this trend will continue. Consumers like to shop locally, and neighborhood stores offer convenience and personal interaction.”
However, competition for prime space continues to be a local challenge, especially for the restaurant industry. Agents say restaurant chains not represented in the local market who look at the area struggle with rents. This is especially true in the Kingsport market, where prime location rents are shutting them out of the market.
There were seven closing on vacant land listed on the NETAR Commercial Multiple Listing Service during the past two months. That’s four more than last year. There were 101 transactions from Flex commercial listings last month. So far this year there have been 233.
NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region, representing over 1,600+ members and 100+ business partners involved in all aspects of the residential and commercial real estate industries. Weekly market reports and information for both consumers and members are available on the NETAR website at https://netar.us