July 29, 2017

Commercial real estate recovery expands to Tri-Cities' smaller markets


Commercial real estate – as measured by new construction permits and their value estimate – was softer during the first quarter than previous years.  At the same time, there's ample commercial property listed. Sales were up from last year while the number of leases declined, which reflects the decline in new construction.

The permit decline was driven by fewer pulls in three of the region's largest markets – Washington TN and VA counties and Sullivan. Greene County saw the biggest permit growth, and new permits increased in other counties across the region.

According to Q1 data compiled by The Market Edge, there were 129 new permits during the first three months of this year. Those jobs had a combined permit value of $24.6 million compared to $90.9 million last year.

The regional permit trend shows the Q1 pace was not that far from the same period during the past three years.  During those quarters, the moving average was 177 compared to 163 this year. Fewer permits are also a reflection of last years above average permit activity in Sullivan County.

The local outlook is similar to what Chief Economist Lawrence Yun capsuled in the National Association of Realtors'® Commercial Real Estate Outlook for this year. "The positive direction for commercial real estate this year will be guided by the steadily expanding U.S. economy, which has legs to grow."

So far, this year the overall local economy has shown continued improvement that is still being led by the housing sector. Residential resales closed the first quarter with record performance, and the average sales price is beginning to increase at a faster pace than it did during the past two years. New home construction is also slowly increasing. 

The labor market continues to improve and is seeing some of the lowest unemployment rates in decades. Regional wages have also increased even though they have not been evenly distributed among the area's two Metropolitan Statistical Areas (MSA). 

" Commercial property new construction is driven mainly by either business expansion or tenant demand to lease space. Unlike new residential construction where new homes are built on speculation to sell, almost no commercial building speculation occurs in our region. Expansion is totally dependent on business expansion or tenant demand to lease space for business use," according to the Northeast Tennessee Association of Realtors'® (NETAR) Commercial and International Real Estate Committee Chairman Jerry Petzoldt.

A quick review of NETAR's Commercial Market Listing Service (CMLS) shows ample listings for the region's two MSAs.

Area-wide there's 3.8 million square feet of commercial space listed for sale and 1.6 million square feet for lease. There's also a little more than 3,000 acres of land listed.

The three-county Johnson City MSA shows listings for 30 industrial sites and 21 in the four-county Kingsport-Bristol MSA.

Johnson City listings leads the Office category with 130 compared to 120 in Kingsport-Bristol

There are 110 listings in the retail-commercial category – 66 in the Johnson City MSA and 44 in Kingsport-Bristol.

Shopping center listings total 82 – 48 in Johnson City and 34 in Kingsport-Bristol.

The Johnson City MSA has 135 acres of land listed. Another 122 acres are listing in Kingsport-Bristol

Kingsport-Bristol has three hospitality listings compared to two in Johnson City.

There are also ten multiple-family listings – nine in the Johnson City MSA and one in Kingsport-Bristol.

 NETAR's CMLS is the largest commercial real estate listing source, so it is a pretty sound market barometer. During Q1 this year there were 27 leases and 28 sales of CMLS listed properties compared to 18 sales and 34 leases during Q1 last year.  The lease demand decline correlates with the decrease in new commercial permits.

NETAR's CMLS is powered by the Catylist system and distributed worldwide. Those listings can be reviewed at Scroll to the bottom of the page for the featured local listings. For a detailed review use the links under the "Tennessee Commercial Property Listings by City. "

Like its residential cousin, commercial real estate is a significant contributor to the local labor market and the overall economy.  Last year's new commercial permit value was $317.3 million.

Here's a capsule version of the number of new commercial permits issued during the first three months of this year across the region:

-    Carter County – 11 permits with a value of $45,000.

-    Greene County – 23 permits with a value of $4.2 million.

-    Hawkins County – four permits with a value of $272, 292.

-    Sullivan County – 42 permits with a value of $11.3 million.

-    Washington County TN – 36 permits with a value of $7.6 million.

-    Scott County – five permits with a value of $255,000.

-    Washington County VA - $887,000.

Eric Kistner is the 2017 president of the Northeast Tennessee Association of Realtors. The real estate education and trade group is the voice for real estate in the Tri-Cities and has over 1,200 local Realtor® members and over 100 affiliates.