Tri-Cities commercial real estate plows through economic doubts with 3% growth


GRAY, Tenn. – Tri-Cities commercial real estate’s September report has a familiar look. The market is outperforming the first nine months of last year while monthly transactions lag the comparison to September last year. It’s similar to the third quarter slowing of U.S. commercial real estate in the face of rising inflation and geopolitical events. But there are local contradictions to the major-metro-centric reports, according to the Northeast Tennessee Association of Realtors (NETAR).

Year-to-date transactions are running 3% ahead of the first nine months of last year, while September’s sales and lease total is down 11% from September last year. Although transactions are slowing they lag in only one local sector. Industrial deals are down by almost half from last year, but that’s more of a lack of inventory than a demand issue. Simply put, there’s a lot of attention on the industrial sector that the local infrastructure – both physical and human – can’t satisfy.



Office transactions continue dominating the local market. Much of it is a churn of firms moving to smaller offices due to the work-from-home trend, according to John Speropulos, development partner and president of Mitch Cox Realtor, Inc. Before the pandemic, almost 10,000 Tri-Cities residents worked from home, according to Census data. During 2021 their ranks increased to 20,875, up 86.9%. The total is expected to be higher when 2022 data is released. Some office clients “just don’t need the pre-pandemic space they had,” Speropulos said.

So far this year, the office listing inventory has dropped to 836. Last year it was 908. Before the pandemic accelerated the work-from-home trend it was 1,381.


The local sector that isn’t showing a significant transaction effect from strong consumer spending is retail. So far this year retail deals have increased by five from the first nine months of last year. The growth rate is small but the transactions paint a stronger picture. Since January, there have been 76 completed deals. That’s almost double the pre-pandemic volume.

Local post-pandemic consumer spending has been strong. As of Sept. 18th, it’s up by double-digits from Jan. 2020 in the counties monitored by Opportunity Insights at Harvard University. Here’s what those increases looked like:

  • Sullivan Co. +32.5%
  • Washington Co. +32.5%
  • Greene Co. +25.5%
  • Hawkins Co. +30%

Although the local commercial market continues to have a retail inventory surplus and more of it is being built, recent activity has put a dent in it. Neighborhood retail that offers in-person services seems to be advancing faster than other retail. So far this year, the Retail-Commercial listing inventory has dropped to 617 from 759 last year. There were 923 listings during the first nine months of 2020.


The local multi-family sector is seen some rent softening, but it hasn’t dampened investors’ plans to expand the market. Kingsport’s BMA recently approved a zoning change on a University Drive land parcel bought by the Valcap group. It already owns the Allendale Falls and Bradley Hills apartments on University Driver. The firm plans to expand those holdings with a new multi-story complex.


Valcap owner Richard Fishman recently posted on LinkedIn that he’s optimistic about the long-term multi-family housing prospects in NE Tennessee and SW Virginia. It recently closed on the purchase of Willow Run Apartments and Promise Landings in Abingdon. It also owns the Landings on Silver Lake in Church Hill, CrossCreek, Brandy Mill, Allendale Falls, and Bradly Hills in Kingsport. It has bought land for a new development in the Bristol area and is shopping for additional opportunities. According to the firm’s website, Valcap’s portfolio includes about 8,000 apartments plus commercial spaces in the U.S.

Nationwide, multi-family absorption and rent growth are decelerating, according to the National Association of Realtors (NAR). Multi-family absorption in the last four quarters was below the pre-pandemic levels. Meanwhile, rents rose at a slower pace. New rent competition has also shown up in the local market after steep increases last year and the first half of this year. Local conditions always vary to some degree from NAR’s update, which is heavily influenced by data from major metro markets. Many investors are looking beyond those major metros to the secondary markets and increasingly to rural metro markets like the Tri-Cities for better profit opportunities because local multi-family housing demand remains stronger. Given rising mortgage rates and home prices, people may be forced to rent for longer due to decreasing affordability.

A recent NAR report shows the Tri-Cities’ two metro areas and the second lowest apartment vacancy rates in East Tennessee.


Vacant land sales are also cooling. Transactions tracked by the NETAR’s Commercial Multiple Listing Service (CMLS) declined to 34 from 31 year-to-date. Vacant land deals tracked by the local Flex commercial database are down 9% from this time last year.

Inflation, interest rates, supply chain woes, and geopolitical events are the main factors determining how commercial real estate will perform in the following months.

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