News
September 24, 2017

Tri-Cities commercial real estate market on upswing

By ERIC KISTNER

Commercial real estate – like its residential cousin – is on the upswing in Northeast Tennessee.  This increase is not at record-breaking levels like the residential resale market, but there are signs some commercial inventory segments are tightening.  


ERIC KISTNER
2017 NETAR President

Data gleaned from Northeast Tennessee's Association of Realtors®' (NETAR) Commercial Multiple Listing Service (CMLS) show new commercial listing and transactions this year were better than last year. At the same time, the Market Edge's regional Commercial Building Permit Trends Report shows a 16% decrease in the number of new building permits and a 36% decrease in construction value.

Don't read too much into the mid-year declines in permits or construction values. Knoxville was the only metro area in East Tennessee that saw an increase from last year (5%). Even Asheville posted a mid-year decrease in activity.

The Market Edge is a Knoxville-based information service that monitors commercial and residential build permits and other building industry trends. NETAR's CMLS is the largest and most comprehensive listing resource available for local office, retail, hospitality, industrial and commercial property.

Although CMLS listing and transaction data doesn't include all local commercial activity, it's a good market barometer. At the half-year mark, there were 127 sale and lease transactions compared to 110 during the first six months of last year. At the same time, there were fewer active industrial and retail/commercial listings than last year. Excluding the softer retail/commercial and industrial listings, the overall listing inventory increased.

Permit activity in the region's two largest markets – Sullivan and Washington County TN, accounted for most of the decreases this year. Sullivan County had the lion's share – down 51 from last year – while Washington County TN permit activity was down by one. All other counties – with the exception of Washington County VA – saw increases. Washington County VA permits were down 16 from the first half of last year.

 Here's how a breakdown of new commercial permits and the construction value for the first six months of this year:

Carter Co. 21 - $1.9 million.

Greene Co. 44, $10.8 million.

Hawkins Co. 12, $955,892.

Sullivan Co. 85, $40.6 million.

Washington Co. TN, 102, $28.8 million.

Scott Co. VA 7, $312,000

Washington Co. VA 30,     $32.4 million.

John Speropulos, president of Mitch Cox Realtor®, was quoted in the company's current CommunityBuilder eNewsletter saying, "This has been a robust year for our team with record gross sales. The increase transactions is likely due to an uptick in investors' recognition of commercial real estate as a stable investment over time."

Jerry Petzoldt, CEO and General Manager of the TCI Group, said there's interest among some property owners to tear down existing properties for rebuilding. He added that national retail firms continue looking at our market but many pass on it because they won't accept secondary sites. "Some of our retail issue is not lack of demand; it's lack of supply of prime sites."

George Ratiu, the National Association of Realtor's managing director of housing and commercial research, says this has been the biggest summer in at least 10 years for commercial Realtors® in smaller markets.  NAR reports the transaction volume in deals closed by its surveyed Realtor® members rose 4.4% over Q2 last year. NAR's data typically reflects trends in smaller properties located in the secondary markets.

NAR's Q2 report said core fundamentals of smaller commercial properties remain in good share because of a strong job growth and improving economy. That's consistent with local recovery conditions.

Petzoldt and Ratiu said financing doesn't not seem to be the issue. "If anything, the main problem right now is there is too much capital chasing not enough inventory," Ratiu said. "There is a lot of cash in the area for people with the right cash flow," Petzoldt added.

NAR is forecasting that commercial vacancies in all asset types will decline over the next year.

Here's how the commercial market inventory looked in early September based on listing in the Northeast Tennessee Association of Realtors'® CMLS for the Tri-Cities' two metro areas:

JOHNSON CITY METRO

1.2 million sq. ft. of commercial space for sale.

869,176 sq. ft. of commercial space for lease.

1,565 acres of land and Farm for sale.

Office listing leads the type of property listings followed by vacant land.

KINGSPORT-BRISTOL METRO

2.5 million sq. ft. commercial space for sale.

740,234 sq. ft. commercial space for lease.

1,262 acres of land and farm for sale.

Office and vacant land lead the property type listings.

The region's commercial property listings can be found by clicking on number of property listing on the NETAR CMLS web site http://www.netarcmls.us/.

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 1,250 local Realtor® members and almost 100 affiliates

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