Higher interest rates and inflation have had mixed effects on the local commercial real estate (CRE) market so far this year.  

Transactions were up for the third straight month in May. They were 16.9% higher than last year, according to the Northeast Tennessee Association of Realtors (NETAR) May Commercial Real Estate Report. At the same time, listing inventory is down, and the new listings continue trending lower. Much of that decline in inventory is the absorption of completed deals during the past year and a half. 

“Year-to-date transactions are up in every category except industrial, shopping center, and retail-commercial,” said Rick Chanty, president of the Northeast Tennessee Association of Realtors (NETAR). “So far this year, there have been 20 more transactions than this time last year. Rising home prices continue to push residential and multifamily occupancy and rents higher. That has fueled interest from both local and out-of-area investors,” he added.  

The office sector was at the top of last month’s transaction leaderboard with 15 new leases and sales. So far this year, that sector has accounted for 51 of the region’s 246 transactions. There have been 38 sales and leases in the retail-commercial sector so far, followed by 20 industrial and 20 vacant land deals. 

According to the National Association of Realtors (NAR) May Commercial Insights report, “The impact of higher interest rates on the economy is causing some heightened risk aversion among investors. But on the whole, the commercial real estate market is still poised to do well despite higher rates and inflation.” 

The total local active commercial inventory is down 18.8% from May last year, and new listings have lagged last year’s five-month growth rate by 5.5%. The only sector with a listing gain is industrial, and that’s only up by two. Total listings are down 1,172 from this time last year. 

Combined, seasonally adjusted non-farm job growth for the region was 400 above the pre-pandemic benchmark. Employment and labor force growth has been stronger in the Johnson City area so far this year. Kingsport and Twin Cities markets are slowly improving but have not reached the pre-pandemic benchmarks.

 Neither of the region’s two metro areas’ commercial markets is as strong as the overall U.S. NAR Commercial Real Estate Condition Index; however, both areas’ overall economic conditions are stronger than they were nationally at the end of the first quarter. 

Here’s the broad assessment of the local metro areas’ commercial sectors according to NAR:  

JOHNSON CITY MSA  

• The office property market is about the same as it is nationally 
• The industrial property market is about the same as it is nationally 
• The retail property market is not as strong as it is nationally 
• The hotel/lodgings property market is not as strong as it is nationally 
• Wage growth, year-over-year, 14.2% 
• GDP growth down 1.1% 

KINGSPORT-BRISTOL MSA 

• The office property market is not as strong as it is nationally 
• The industrial property market is stronger than it is nationally 
• The retail property market is not as strong as it is nationally 
• The hotel/lodging property market is about the same as it is nationally 
• Wage growth, year-over-year 10.1% 
• GDP growth down 4%