Tri-Cities commercial real estate market gaining momentum, optimism increases

Local Commercial Realtors are more optimistic about the Tri-Cities market than some of the data supports. But some of that enthusiasm is based on momentum that won’t show up until Q4 reports are available.

One Tri-Cities data bright spot is commercial lease transactions reported by the Northeast Tennessee Association of Realtors (NETAR) Commercial Multiple Listing Service (CMLS).  During the first nine months of this year, there were 94 lease transactions of CMLS properties. That’s a 27% increase from last year and the best three-quarter performance since 2016. Lease transactions in 2017 were the previous nine-months best at 91.

Shopping Center leases topped this year’s Q3 year-to-date total with 33 leases followed by 20 leases of office properties. There were 13 leases for industrial properties and 17 retail-commercial.

Commercial sales had a good third quarter – up 3% from last year- but the 370 sales during the first three quarters were 2.9% below last year, and the sales volume of $177.4 million was 31.7% less than the same period last year. That data comes from the Appalachian Highlands Dashboard for Real Estate Analytics – a new venture by Don Fenley, supported by TechPoint’s Austin Ramsey and TCI Group’s Nina Heffner, and underwritten by Jerry Petzoldt TCI Lifestyle Investments.

The Dashboard’s year-to-date report shows there have been two multi-million sales and 30 million-dollar-plus commercial sales so far this year.

Sales for all real estate properties so far this year total 8,927 (down 0.6% from last year) with a total sales volume of $1.4 billion (down 3.7% from last year). The first nine months of last year was the strongest period since 2016 with 8,982 sales with a total sales volume of $1.5 billion.

There were 450 new commercial building permits for the seven-county Tri-Cities region during the first three quarters, a 14.7% increase from last year, according to The Market Edge’s Q3 Commercial Permit Trends Report. The $189 million permit value is a 3% increase from the same period last year.

Only two of the four area metro regions reported more permits and higher permit values so far this year. The Knoxville region’s permit total was up 3.7% and the value was up 14%. The Chattanooga and Asheville regions had double-digit declines in the number of permits and permit value.

Washington Co. TN and Sullivan Co. permits dominate the report since they are the region’s largest markets. Washington and Greene counties recorded the biggest increase in permits so far this year. Washington Co. posted 41 more permits than last year while Greene Co. recorded an increase of 16 permits. The largest gain in permit value compared to the first nine months of last year was Washington Co. ($72.4 million, up 59%) and Hawkins Co. ($2.1 million up 164%.) Sullivan Co. has the highest permit value for the period ($76.2 million, up 17% from last year).

Kelly Graham

Commercial practitioner Kelly Graham of Graham and Associates summed up his primary market area focus by saying, “Bristol remains hot. It continues to be on the tip of everyone’s tongue. There’re are a lot of people positioning themselves in advance of the upcoming culmination of plans to locate a casino in the old Bristol Va. mall.  “Given the fact that it’s going to happen, they are looking at where they need to place retail and offices.” The next step in the casino project will come from the Virginia General Assembly in January. After that, the decision will be made in a local-option election.

John Speropulos

John Speropulos, president of Mitch Cox Realtors, said the region’s overall commercial market has turned robust after a slow start during the first half of the year. “We’ve absorbed a fair amount of office and industrial space,” and the increase in demand is increasing both the quality and velocity of deals. “We can’t get them done quick enough.” He said retail is still a little softer than he had expected while the demand for industrial space continues to outstrip the supply.

Speropulos said cautiously optimistic about the 2020 outlook is a fair projection, “but I may be a little more optimistic.”

Lynn Shipley

Lynn Shipley, TCI Group, who is coming up on his second year since retiring from the local banking industry, said he’s seeing pretty good activity. “There a fair amount of investor money out there. I get out-of-state calls every day from investors.” Commenting on a recent Business Journal update on bankers’ outlook for the challenges and opportunities they face, Shipley agreed that cautiously optimistic is a reasonable outlook.

Gerald Hallenbeck, Northeast Tennessee Market President for First Horizon, said in the Business Journal article, “We’re always watching for any sort of decrease in economic situations, but we haven’t seen it yet. I don’t see or feel anything in our company that says, ‘Hey, we’ve got to slow it down because we’re afraid the economy’s going to slow down. You know, you just stay with the fundamentals. Making good loans to good people and you’ll be fine.”

Shannon Castillo

Shannon Castillo, Mitch Cox Realtors, is focused on downtown investments and rejuvenation. In many ways it’s the commercial real estate component that attracts the most public attention. Her overall impression of the momentum of that market across the region makes her think 2020 is going to be a strong year. She said construction prices continue to be a concern and, in some cases, a headwind in downtown efforts. But that’s “doesn’t lessen the opportunity for niche spaces.”

She thinks 2020 will be a big year for construction, adding a lot of apartments and a lot of spaces for commercial tenants.


Categories: REAL ESTATE