Unlike its residential cousin, commercial real estate (CRE) isn’t seeing an early and robust rebound from the initial economic Covid-19 pandemic shock.

Total transactions for the first half of this year were down 22.5% compared to the first half of last year, according to the Northeast Tennessee Association of Realtors (NETAR). Sales of listing on the NETAR Commercial Market Listing Service (CMLS) were down 30.7% from last year’s mid-year total while leases transactions lagged by 16.1%.

CMLS Committee Chair Cassie Petzoldt said there has been an increase in traffic and interest – both on the internet and in-person – but there’s more “checking things out” than actual deal-making so far.

The full impact of the pandemic on the Tri-Cities CRE market is still unknown, but there’s little doubt it will reshape parts of the commercial sector because while the recession is expected to be short, the recovery will be slow.  There’s also little doubt that some local CRE sectors won’t behave like the national sectors.

For example, most analysts predict a tough time for office space thanks to the explosion of the remote and working-from-home trends escalated by the pandemic. The local office space inventory was not exactly healthy before the pandemic. It hasn’t recovered from the coal industry’s decline, the transition of the local economy from a manufacturing to a service industry base, and the merger of local hospital systems. But while there is still an abundance of inventory, office sales and lease transactions were the only sectors outperforming last year.

Sectors taking the biggest hits were retail-commercial (down 51.7%) and shopping center (down 43.5%). This aligns with the massive job losses in the region’s Leisure and Hospitality job sector. Restaurant properties have seen increased interest, according to local practitioners.  While there are new restaurant announcements and re-openings reported in the news, analysts think a loss of about 25% in the restaurant industry is possible before the shakeout is over.

Compared to the first half of last year, the biggest local transaction decline was in the multi-family sector. It was down 75%.

Land sales are off by a third, while industrial sales and leases are down 5.3% from mid-year 2019. That was one of last year’s hot items.

Despite the big declines in local sales and lease transactions, there are signs of new commercial real estate development. A major downtown Bristol project, continued expansion at the Pinnacle, and expansion in West Kingsport are examples.

A softening of the commercial market was well underway before Covid-19 showed up in the second quarter.

During the first quarter, there were $60.8 million in CRE sales, according to the Appalachian Dashboard for Real Estate Analytics. The Dashboard data is more compulsive of the market because it tracks sales by deed transfers instead of transactions of CMLS listings. Those sales were down 15.3% from Q1 2019, and the volume lagged by almost half. But to put that in context, Q1 2019 was the best Tri-Cities commercial sales quarter in four years.

At the same time, there were 147 area commercial permits with a permit value of $44.9 million. Sullivan led the seven-county region with 55 new permits followed by Washington Co. TN with 45 new permits.

Mid-year reports on commercial permits and from the Dashboard will be available early in the third quarter.

There are currently 307 commercial properties listed on the NETAR CMLS site for sale or lease in the three-county Johnson City Metropolitan Statistical Area (MLS). That area includes Washington, Carter, and Unicoi counties in NE Tenn.

There are 241 listings in the four-county Kingsport-Bristol MSA. It comprises Hawkins and Sullivan counties in NE Tenn. and Hawkins and Washington Co. in SW Va.

There’s no significant change in the number of listings from May.

Listings are public and searchable at https://www.netarcmls.us/