Local commercial estate expected to do well despite higher interest rates
Local commercial real estate (CRE) transaction activity was slightly higher than February and down 20% from March last year. First-quarter activity was unchanged from last year.
“Transaction activity alone is not a sign of market softness,” said Cassie Petzoldt, chair of the Northeast Tennessee Association of Realtors (NETAR) Commercial Committee. She added that the National Association of Realtors (NAR) overall CRE outlook is a good assessment of local conditions.
“According to NAR’s outlook, ” Commercial real estate can be expected to perform well this year despite the prospect of higher interest rates. While interest rates are expected to broadly rise by about 75 basis points, they will still be low compared to historical levels and should not cause a severe decline in investment activity and the ability of companies to service their debt.
“Bottom line: CRE’s underlying demand fundamentals should more than mitigate the impact of the slightly higher interest rates in 2022, according to NAR’s 2022 Commercial Real Estate Outlook report.”
A slight decline in office sales and leases and vacant land sales are a departure from previous months. Office transactions have been a local CRE leader for two years, Petzoldt said. And since one of the two local CRE databases does not segment its transactions, the decline is as much of a technical challenge as a market situation.
Overall active inventory was down 19.4% from March last year. Inventory by sector on the NETAR Commercial Multiple Listing Service (CMLS) is down 22% from Q1 last year. Absorption by sector was highest in the Johnson City metro area, up 22%. Kingsport-Bristol’s listing absorption was up 19.8%.
Total land transactions are down from the first quarter of last year. Residential lot sales have absorbed much of that inventory sector. It’s expected to increase as the number of ongoing and planned residential development progress.
Lease and sales activity in the local office sector has been better than national performance due to lower costs than the secondary markets and the region’s ample inventory of vacant office space.
The number of Q1 office listings is down 78 from last year. Kingsport-Bristol metro had the highest absorption from last year’s listings, up 56 transactions. There are currently 48 office listings in Kingsport-Bristol.
Johnson City had an increase of 22 office sales and leases compared to Q1 last year. There are currently 43 CMLS office listings.
The lack of inventory continues to be an issue in meeting local demand in the industrial sector.
Lack of inventory and high demand in the residential sector has made multi-family developments a hot CRE asset. Investors and developers – both local and out-of-area – continue to be active in the area, and several large multi-family developments are planned.
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