Tri-Cities commercial real estate lease transactions closed out 2019 with the best performance since 2016.
The type property that saw the most activity was shopping center parcels, but only barely. Office leases trailed by only one lease. There was also heavier activity among retail-commercial transactions than where were in 2018. A shopping center listing is typically space in a multi-tenant building while a retail commercial listing is often a free-standing building.
There were 127 transactions at year’s end, according to the Northeast Tennessee Association of Realtors (NETAR) Commercial Multiple Listing Service (CMLS). That total doesn’t include transactions listed on other sites.
Retail markets are a hot topic as the region begins 2020. Opponents to a proposed retail, development at Exit 17 in Gray have put up a defense for what is being called “retail poaching.” Pinnacle developer Steve Johnson is maneuvering to see legislation that a new development like the one proposed in the Gray Exit could not poach clients from the Pinnacle. Varied news reports on this issue can be found on the NETAR CMLS Facebook Page at https://www.facebook.com/netarcmls/
Looking at the bigger retail picture Michael Green, Green Commercial Realty, says, “It’s interesting to me that retail and shopping center leasing has shown such strong numbers this year (2019). But it’s attributable to a few strong players commanding the lion’s share of the submarkets.” His comments were made days before the dust-up over the proposed Exit 17 development.
“In Johnson City, several of the older centers have got major capital expenditures and resulting occupancy improvements that were impressive. Of course, the Pinnacle continues to dominate the region for relocations and new tenants and will continue that trend until a project emerges with a location and value propositions that can compete. Unfortunately, our malls will continue to be challenged to transition to multi-purpose and entertainment venues to stay relevant. As for unanchored retail, well, it’s best to have a location with staying power and other tenant appeals because rent compression is accelerating.”
Some of that rent compression was recently cited as one reason for the closing of retail outlets at the Pavilion in Kingsport. There has also been some chatter about Pinnacle tenants looking to relocate due to their current rents and inquiries from Kingsport retailers looking to relocate to the Johnson City area to “follow where their market is more concentrated.”
While NETAR’s office lease transactions showed weaker performance than 2018 that’s not the whole picture since the commercial real estate market is spread over several listing services. In an earlier report on mid-year market activity John Speropulos, president of Mitch Cox Realtors, noted that “a fair amount of office and industrial space” had been absorbed in 2019.
That contrasted with the national market assessment. Lawrence Yun, senior vice president and chief economist for the National Association of Realtors, and other economists at a recent meeting reported a decline in industrial and office activity across all regions during Q3. The region that fared best in that climate was the south.
Green said he was seeing some office tenants covert to owners, which is generally positive. “I think the office market is trending toward a similar scenario as the apartment market. As we continue to be oversupplied, the older, less well-located or outdated properties will be vacated and/or rents adjusted to break-even. Still, we’ll see market-side quality improves from the attritions.”
The hot property type for the region continues to be in the industrial class.
“There’s not a whole lot of industrial on the market, and what’s there is not what many clients are looking for,” Speropulos said late last year. Of course, they’re always the option to repurpose and upgrade existing industrial sites, but “there’s a little local sticker shock” associated with those costs he added.
Green called the industrial inventory “the most obscured property segment of all. I think it’s because we compete for users on a far wider geographic plain.”
Here’s how the mid-January NETAR CMLS listings looked for the seven-county Johnson City – Kingsport – Bristol TN VA Consolidated Statistical area:
Industrial – 38
Office – 174
Retail-commercial – 97
Shopping center – 68
Vacant land – 190
Farm/ranch – 2
Multi-family – 6
The total space listed for sale is 736,066 square feet, while the lease total is 2.1 million square feet. There is a total of 2,559 acres of land listed.
Categories: REAL ESTATE