By DON FENLEY
TRI-CITIES, Tenn. – Here’s a trend many consumers will applaud. More national brand tenants are coming to or expanding in the Tri-Cities.
And it’s a trend that is and will continue putting more pressure on independents who struggle with higher rents to be in desirable locations, according to Ramon Sanchez-Vinas, owner of Value Source Business Advisors. He’s also the vice president of Business Marketing and Sales at the TCI Group.
“As business brokers, we see trends in the market before they are happening,” he said. One of those trends is national brand tenants willing to invest significantly to get space in already mature properties. Some examples include Wing Stop replacing what was formerly a mom-and-pop barbeque restaurant across from the Johnson City Mall. “Their (Wing Stop’s) permit was for a $300,000 investment in a building they won’t own. That’s the cost-benefit dynamic a mom-and-pop would face.”
Another example is Texas Roadhouse self-construction, a new building. “They chose to be their own landlord to save on occupancy costs over the long term and to get a better position in the market.” Taco Bell did much the same thing by tearing down its building to replace it with a new building that’s more cost efficient and configured for today’s consumer who are most likely to pick up their food instead of dining in. And in Kingsport Chipotle will expand its Tri-Cities footprint at a site that used to be a car wash when the new construction is finished. Those are just a few local examples.
Trends like this are slow to develop and often don’t register with the public in the monthly Northeast Tennessee Association of Realtors (NETAR) Commercial Transaction Reports. Retail-commercial transaction for August and since the first of the year are an example. So far this year the building sales and lease landscape has been soft. There have been 41 new retail-commercial sales and leases. This time last year there were 54.
According to Jerry Petzoldt, chairman of NETAR’s Commercial Committee, the sales fluctuation is normal and anticipated with rising interest rates and more limited and conservative loan underwriting. “There seems to be a lot of new development planning taking place to ready land with an improving economy and market conditions in 2024,” he added.
Transactions in every sector of NETAR’s Commercial Multiple Listing Service (CMLS) and Flex are running behind last year’s numbers. Total sales and leases are 33.2 percent off last year’s pace.
The national retail outlooks for the second half of 2023 are for increased sales and growth. But that’s retail sales, not infrastructure sales and leases.
Retailers will continue to design stores to align with the rise in use of retail app use and mobile devices. Quick-service outlets designs that include separate counters and multiple drive-thru for third-party app delivery are becoming more common. Other retailers have and will continue to dispense with traditional check-out counters for associates with point-of-sale mobile devices.
“Our outlook is the Tri-Cities will continue to see more national brands establish first locations in the region with additional units to be built.” And there will be “more competition from national brands who have been eyeing the Tri-Cities market for years,” Sanchez said.
Meanwhile, here’s how the year-to-date commercial transactions look from CMLS and Flex:
– Industrial – 15, down 11 from last year.
– Office – 34, down 35 from last year.
– Retail-Commercial – 41, down 13 from last year.
– Multi-Family – 62, down 42 from last year.
– Vacant land – 16, down 16 from last year.
So far this year there have been 257 commercial leases and dales. This time last year there were 393.