Mid-year commercial real estate update

Mid-year 2018 Tri-Cities regional commercial real estate update

Look at just commercial real estate data for the first half of 2018 in the Tri-Cities and it's unremarkable compared to the rest of the economy. New building permits trailed the first half of 2017 by 28%. Total transactions reported by the Northeast Tennessee Association of Realtors'® (NETAR) Commercial Multiple Listing Service (CMLS) were down by 17.9% while listing was up 21%. At the same time there's the fear and loathing about how national politics are or might be affecting the economy.


Data Source - The Market Edge
Knoxville, Tenn.

That's a stark contrast to an economy that's booming. Consumer confidence is high. The region is at full employment. Wages are up – not by a lot but they're up. Retail sales and sales tax collections are doing quite well. In fact, Kingsport-Bristol has the best sales tax collection market share performance in Northeast Tennessee.

Attribute some of this contrast to the fact that commercial real estate data is a lagging economic indicator – especially the local commercial real estate market. It doesn't lend itself to the short-term analysis that residential real estate affords. While residential real estate and the housing market frequently leads the rest of the economy out of bad times local commercial real estate often trails the residential market by a year to a year-and-a-half.

By The Numbers

According to the Market Edge's mid-year commercial building permit report there were 216 new permits issued in the Tri-Cities region during the first six months of this year compared to 301 last year. NE Tenn. counties included in the report include: Carter, Greene, Hawkins, Sullivan, Washington.  Scott and Washington counties in SW Virginia are also included. New permit totals have slowly declined every year since 2011. The dollar number attached to this year's permits was $72,865,805, down 37% last year. From an East Tennessee perspective, the Tri-Cities in the only area with a mid-year decline in permits and permit value.

There were 92 transactions of CMLS listings between January and the end of June compared to 112 last year. Listings originated during the same period totaled 183, up from 156 last year.  While a CMLS listing receives the broadest exposure, some commercial listings are not included on other platforms. CMLS listings can be searched at https://www.netarcmls.us/ . The site also has a featured listing section, a directory of commercial members and a capsule report of recent deals.

At the end of August CMLS had listings for 18.7 million square feet of commercial space for sale; 724,213 square feet of commercial space for lease and 1,025 acres of land in the three-county Johnson City MSA.

Listings for the four-county Kingsport-Bristol MSA included 1.3 million square feet of commercial space for sale; 548,670 square feet for lease and 1,179 acres of land.

 

Brief local mid-year insights

John Speropulos, president Mitch Cox Realtor, Inc.


John Speropulos

Speropulos is deemed a Specialist in the Office Market and has been conferred the designation of SIOR by the Society of Industrial and Office Realtors. Those with an SIOR designation are recognized as the most capable and experienced brokerage practitioners in any market. He is currently the president of the Middle and East Tennessee SIOR Chapter. With more than 17 years of experience in the real estate industry, Speropulos leads the commercial division of Mitch Cox Companies and is President of Mitch Cox Realtor, Inc. In his career, he has successfully represented local, regional, and national clients. He also manages a portfolio of more than 1,100,000 square feet of commercial real estate in the Tri-Cities. He has two Bachelor of Business Administration degrees from East Tennessee State

University (one with a major in Accounting, the other with a major in Finance - Real Estate.

We have a lot of office inventory for a small market like ours. Currently that segment of the market is a little soft. And while we have a lot of inventory most of it is for smaller spaces - l,000 to 1,600 square feet.  There's also resistance in this market about paying the price for what new costs.

I don't see the local economy slowing down. You hear about concern and hesitancy by some businesses and investors over what's happening in Washington, D.C, but locally I don't see that translating to people's pocketbooks. Local businesses are doing well. There's fear and a lot of angst, but dollars are still flowing and the local economy is thriving despite a labor crunch and higher construction costs.

One worrisome development is a growing division between the haves and have-nots.

Sproles is a regional partner with TCI Group – Jerry Petzoldt Agency


Gary Sproles

Sproles has extensive commercial real estate experience including buy, sell, lease and trade transactions as well as site selection, master planning, and projects management. Sproles held various management positions at Eastman Chemical Company before retiring in 2004 as its director of global real estate services. In 2005 he served the region as the interim director of NETWORKS, Sullivan Partnership. NETWORKS provide integrated economic development services for Sullivan County. Sproles is a Kingsport native and a graduate of the University of Tennessee. He holds a BS degree in civil engineering and an MS degree in engineering management.

One of my current focuses is on bank and medical properties. While there's a lot of concern about local consolidations, there are also transactions on the shrink side. Right now, we have a remarkable amount of good branch bank sites available.

An exciting development is the new space on Jack White Dr. in Kingsport. And, the Kmart sites in Johnson City and Kingsport are prime sites for redevelopment.

Both Kingsport and Johnson City have limitations in the hot retail areas. Many want to be there until they see what the price tag is going to be. The Pinnacle in Bristol continues to render remarkable results.

 


Listing for the Tri-Cities two metro areas' at the end of August, 2018

Although it didn't come at a time to affect conditions in the mid-year report news about the potential redevelopment of part of the old Bristol Mall to a casino has fired up interest in that market, and the region's, commercial real estate and economic evolution.