NETAR Commercial MLS Blog
Commercial real estate – as measured by new construction permits and their value estimate – was softer during the first quarter than previous years. At the same time, there's ample commercial property listed. Sales were up from last year while the number of leases declined, which reflects the decline in new construction.
The permit decline was driven by fewer pulls in three of the region's largest markets – Washington TN and VA counties and Sullivan. Greene County saw the biggest permit growth, and new permits increased in other counties across the region.
According to Q1 data compiled by The Market Edge, there were 129 new permits during the first three months of this year. Those jobs had a combined permit value of $24.6 million compared to $90.9 million last year.
The regional permit trend shows the Q1 pace was not that far from the same period during the past three years. During those quarters, the moving average was 177 compared to 163 this year. Fewer permits are also a reflection of last years above average permit activity in Sullivan County.
The local outlook is similar to what Chief Economist Lawrence Yun capsuled in the National Association of Realtors'® Commercial Real Estate Outlook for this year. "The positive direction for commercial real estate this year will be guided by the steadily expanding U.S. economy, which has legs to grow."
So far, this year the overall local economy has shown continued improvement that is still being led by the housing sector. Residential resales closed the first quarter with record performance, and the average sales price is beginning to increase at a faster pace than it did during the past two years. New home construction is also slowly increasing.
The labor market continues to improve and is seeing some of the lowest unemployment rates in decades. Regional wages have also increased even though they have not been evenly distributed among the area's two Metropolitan Statistical Areas (MSA).
" Commercial property new construction is driven mainly by either business expansion or tenant demand to lease space. Unlike new residential construction where new homes are built on speculation to sell, almost no commercial building speculation occurs in our region. Expansion is totally dependent on business expansion or tenant demand to lease space for business use," according to the Northeast Tennessee Association of Realtors'® (NETAR) Commercial and International Real Estate Committee Chairman Jerry Petzoldt.
A quick review of NETAR's Commercial Market Listing Service (CMLS) shows ample listings for the region's two MSAs.
Area-wide there's 3.8 million square feet of commercial space listed for sale and 1.6 million square feet for lease. There's also a little more than 3,000 acres of land listed.
The three-county Johnson City MSA shows listings for 30 industrial sites and 21 in the four-county Kingsport-Bristol MSA.
Johnson City listings leads the Office category with 130 compared to 120 in Kingsport-Bristol
There are 110 listings in the retail-commercial category – 66 in the Johnson City MSA and 44 in Kingsport-Bristol.
Shopping center listings total 82 – 48 in Johnson City and 34 in Kingsport-Bristol.
The Johnson City MSA has 135 acres of land listed. Another 122 acres are listing in Kingsport-Bristol
Kingsport-Bristol has three hospitality listings compared to two in Johnson City.
There are also ten multiple-family listings – nine in the Johnson City MSA and one in Kingsport-Bristol.
NETAR's CMLS is the largest commercial real estate listing source, so it is a pretty sound market barometer. During Q1 this year there were 27 leases and 28 sales of CMLS listed properties compared to 18 sales and 34 leases during Q1 last year. The lease demand decline correlates with the decrease in new commercial permits.
NETAR's CMLS is powered by the Catylist system and distributed worldwide. Those listings can be reviewed at http://www.netarcmls.us/. Scroll to the bottom of the page for the featured local listings. For a detailed review use the links under the "Tennessee Commercial Property Listings by City. "
Like its residential cousin, commercial real estate is a significant contributor to the local labor market and the overall economy. Last year's new commercial permit value was $317.3 million.
Here's a capsule version of the number of new commercial permits issued during the first three months of this year across the region:
- Carter County – 11 permits with a value of $45,000.
- Greene County – 23 permits with a value of $4.2 million.
- Hawkins County – four permits with a value of $272, 292.
- Sullivan County – 42 permits with a value of $11.3 million.
- Washington County TN – 36 permits with a value of $7.6 million.
- Scott County – five permits with a value of $255,000.
- Washington County VA - $887,000.
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 1,200 local Realtor® members and over 100 affiliates.
The Business Journal of the Tri-Cities is reporting , "In an increasingly competitive business landscape, nobody can leave money on the table. Realizing that, the Commercial Multiple Listing Service realtors in the Northeast Tennessee Association of Realtors are hoping to break down the walls that have long separated them from their residential counterparts. The hope, says Jerry Petzoldt, chair of the NETAR Commercial and International Committee and CEO of TCI Group, Jerry Petzoldt, Inc., in Kingsport, is to create a new relationship model that will benefit both commercial and residential realtors.
“Commercial real estate is a mystery to most people, including many residential realtors. We need more people, both in the general public and in residential real estate, aware of the commercial opportunities when they see them. Right now the question is, if someone has knowledge about an opportunity, do they know what to do with it other than talk about it with their friends? Most transactions that occur come from a seed of two people."
The full report can be found at http://bjournal.com/residential-commercial-realty-boundaries-fading/
By ERIC KISTNER
New Tri-Cities commercial permits paralleled what new residential permits recorded in Sullivan and Washington counties for 2016. They barely sustained 2015's gains. But at the same time, estimated permit value increased. That's noteworthy because year-over-year project values declined in the Chattanooga, Knoxville markets.
Overall the market ended the year with one fewer new commercial permit than last year. Estimated construction costs were $317.3 million, up 7.3%.
Commercial real estate doesn't get the attention the residential sector attracts. And the ranks of commercial Realtors® are not as deep. But look at it this way. Every time you read about a new business ribbon cutting a commercial Realtor® was almost always involved because investments and economic development are the pulses of commercial real estate. Even though they do much of the heavy lifting, they stay in the background while the politicians and local dignitaries are in the spotlight.
While the Northeast Tennessee Association of Realtors® (NETAR) has over 1,200 members, NETAR Commercial Multiple Listing Service (CMLS) has 62 members. Of course, there are commercial agents who aren't CMLS members just as there are residential agents who aren't NETAR members.
Even though CMLS's profile is not as high, it's role is critical because it's the leading resource for local commercial listings. Here's what those listings, a capsule of the local commercial property inventory, looked like when this column was written during the last days of February.
There were 28 industrial, 123 office, 68 retail-commercial, 53 shopping center, 146 vacant parcels of land, two farm/ranch listings, one hospitality and ten multi-family listings in the Johnson City Metropolitan Statistical Area. Carter, Unicoi, and Washington counties comprise that MSA. Those listings represent 911,487 sq. ft. of commercial space for sale, 1 million sq. ft. of commercial space for lease and 1,817 acres of land on the market.
There are 16 industrial listings, 117 office, 40 retail-commercial, 30 shopping center, 131 vacant land, one hospitality and one multi-family listing in the four-county Kingsport-Bristol MSA. That area included Hawkins, Sullivan, Scott and Washington Co. VA. The listing represents 1.1 million sq. ft. of commercial space for sale, 457,606 sq. ft. of commercial space for lease and 1,409 acres of land on the market.
Those listings are available to everyone and are located at http://www.netarcmls.us/. Links for commercial listing by city can be found at the lower right corner of the CMLS page.
In several ways, the local commercial real estate market is pacing national conditions.
Lawrence Yun, National Association of Realtors' (NAR) chief economist, commenting on NAR's 2017 Commercial Real Estate Forecast recently said, "the U.S. economy is poised for slight improvement in 2017. Last year was the 11th year in a row of subpar GDP growth. Steady hiring and low local unemployment levels are finally supporting higher wages and increased spending, which in turn bodes well for sustained demand for all commercial property types.”
Although some sectors of the Tri-Cities economy have yet to reach pre-recession levels the overall economy is seeing improvement much like the national economy. A big factor is high consumer confidence, and there's a considerable focus on repurposing existing office and retail properties.
Yun says at least in the short term, the possibility of a more tax-friendly business environment combined with the positive benefits of 1031 exchanges could quicken the pace of economic growth and support stronger commercial market fundamentals. The industrial sector — already enjoying increased demand from the soaring popularity of e-commerce — could see a further decline in vacancy rates if increased manufacturing comes to fruition and accelerates the need for more warehouse space.
"The positive direction for commercial real estate this year will be guided by the steadily expanding U.S. economy, which has legs to grow and continues to be one of the top economic performers and safest bets in the world,” Yun added.
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 1,200 local Realtor® members and over 60 affiliates.
Richard Panek, CEO State of Franklin Healthcare Associates, briefed the audience on his group's operations then turned his attention to topics like what may happen after an upcoming merger to the current inventory of administrative and clinical inventories and demographic trends driving health care practices and specialties. Other topics included how some of the local independent providers may react and adjust to a new playing field after a proposed merge of Wellmont and Mountain States.
Healthcare is the region's largest employer, and indicators point to its continued role as one of the principal drivers of the regional economy. That effect of the real estate industry plus its evolving real estate needs puts it at the top of the watch list for professionals staking out a proactive position for their businesses.
Plans for the next CMLS program are being finalized for June. The program will focus on some of the emerging retail trends and how local malls are or plan to cope.
Tri-Cities commercial real estate development flat in Q3, shows slow year-to-date improvement over 2015NOTE - The 2016 year-end commercial report should be available in late Feb. 2017
Year-over-year growth of commercial construction was down by three permits in the third quarter, but year-to-date the market is on a slow-growth pattern similar to the average sales price of single-family residential resales.
The Market Edge’s Commercial Building Trend Report shows single-digit year-to-date permit increases in Sullivan and Washington counties while every other county in the region – except Greene – posted declines.
Northeast Tennessee counties included in The Market Edge’s report for the Tri-Cities Region include Carter, Greene, Hawkins, Sullivan and Washington counties in Tennessee. Scott and Washington County VA are also included. Sullivan posted the largest number of permits and the largest year-to-date increase. The year-over-year Q3 totals show Washington Co. TN with three more permits than Sullivan.
So far, this year 539 commercial permits were pulled the seven-county region. That’s 0.6% better than the first nine months of 2015.
While that’s basically a flat market, this year is a respectable 11.3% increase from the first nine months of 2014 and 4.3% better than 2013.
Here’s a snapshot of county permit activity compared to the first nine months of last year.
Carter – 27, down three.
Greene – 55, up one.
Hawkins – 8, down five.
Sullivan – 205, up 11.
Washington TN – 169, up seven.
Scott – 7, down one.
Washington Co. VA – 61, down five.
The Tri-Cities’ 0.9% increase lagged the Chattanooga and Knoxville regions year-to-date permit performance. Both of those areas saw 5% increases.
According to Northeast Tennessee Association of Realtors President Marsha Stowell, at the end of Q3, there were 1.1 million square feet of commercial space for sale in both the Johnson City and Kingsport-Bristol Metropolitan Statistical Areas.
Lease space in the three-county Johnson City MSA was 1.3 million square feet. In Kingsport-Bristol it was 637,151 square feet, she added.
Glenn Perkins, a commercial Realtor with the TCI Group, said active listing in Washington County have been in a general decline so far, this year while Sullivan County has shown a general uptick over the past 12 months. “Completed transactions for Washington County increased over the first three months of this year and have been on a steady decline since. Sullivan County showed a decline in completed transactions over the first three months of the year with an increase only in May and June followed by a general decline.
Annual lease rates for Washington County dropped in early summer and then after a brief increase has remained flat while days on market have increased significantly Sullivan County has had a slow but general increase over the year while days on market remained relatively stable, although high.
The National Association of Realtors 2017 commercial real estate outlook calls for improvements to begin moving into smaller markets.
Lawrence Yun, chief economists, and K.C. Conway, senior vice president of cred risk management at SunTrustBank, expressed confidence that commercial real estate activity should remain on an upward trajectory, but with more uncertainty given the environment for higher interest rates.
Retail expansion and redevelopment continue with multi-family construction continue to be the most visible signs of commercial real estate development.