March sees strong growth for Tri-Cities commercial real estate

Tri-Cities commercial real estate saw its best month in over a year in March. Transactions were up 71.9 percent in the wake of a dramatic increase in office sector activity. And new listings were up nine percent over last year.

The first quarter was equally strong, with a 38.5 percent transaction increase.

Cassie Petzoldt, Northeast Tennessee Association of Realtors (NETAR) Commercial Committee chair, said momentum has been building since the fourth quarter of last year. It finally took off last month. Commercial real estate is typically more aligned with the overall economy and the business cycle, and we're seeing positive movement for both this spring."

Commercial vacant land sales were the lifeblood of commercial transactions last year. This year's transactions are more than double what they were the first three months of last year.

Industrial properties also continue to be stable. Last year there were 34 transactions. During the first three months of this year, there were 11 transactions compared to nine last year. The strongest headwind is lack of inventory.

With the economy beginning to open, activity in both the shopping center and retail-commercial sectors is coming to life. This year, retail-commercial transactions are up more than 40 percent, and shopping center transactions are up almost 40 percent.

Commercial markets and the overall economy turned down in 2020 due to an external shock – not an internal weakness. The effects of that shock are beginning to wear off, releasing the pent-up demand that built up last year.

New commercial real estate construction is also expanding. There were 563 commercial permits pulled last year, according to The Market Edge's Commercial Real Estate trends report. That 8.5 percent increase over 2019 was the best year since 2016. Construction value for last year's permits was $199.1 million.

Local commercial real estate gains momentum

Commercial real estate (CRE) gained some local momentum in February. Transactions were up from January. Year-to-date transactions were better than the first two months of last year. And listing traffic is also higher. The only lagging indicator is inventory.

The local commercial market is beginning to respond to anticipation of a consumer spending splurge and an improved business cycle as the retail and service sectors open up, said Cassie Petzoldt, chair of the Northeast Tennessee Association of Realtors (NETAR) Commercial Committee. Things are improving, but commercial real estate is more dependent on the business cycle, which is picking up, than residential real estate, which is booming.

Commercial vacant land listings were the lifeblood of February’s local listings. They were 20 more than last month but 52 fewer than the first two months of last year. That’s consistent with the increased sales of commercial and other land sales during the past 12 months.

There were 37 commercial transactions last month, six more than last year, according to NETAR’s Commercial Sales Report. Listings There were 875 listings, down 135 from January and 206 fewer than February last year.

Listing web traffic increased 25.5% from January.

Nationwide the industrial sector continues to be the lifeblood of the commercial market. Locally, industrial listings were down from the first two months of last year. That’s not unusual since industrial transactions were among the leading group last year, and there hasn’t been a rush to upgrade inventory.

Listing for retail commercial and shopping center increased over the first two months of last year. So have investor inquiries. Some of that can be attributed to the trend toward lower rents for retail properties. The National Association of Realtors (NAR) forecast calls for a 2.5 percent decrease in retail rents this year.

The 2020 year-end report on commercial building permits is scheduled for release next month. It’s projected that it will increase the number of new permits from the 2019 total.

Tri-Cities commercial real estate continues slow recovery

The Tri-Cities’ commercial real estate (CRE) market continued eking out a slow recovery in January despite continued economic challenges. Transactions and new listings were up from last year, and the Industrial, Office, and Vacant Land sectors continue to be the market’s lifeblood.

There were no transactions for Shopping Center properties in January and only two in the Retail-Commercial sector. Both lag the Jan. 2019 sector performance.

There were 26 transactions last month, three more than in January last year, according to the Northeast Tennessee Association of Realtors (NETAR) Commercial Sales Report. There were 1010 listings, up 206 from December and 34 more than last year. Listing web traffic increased 19.4% from December.

Economic conditions have a heavy impact on commercial transactions, and the labor market is at the top of the watch list. The overall Tri-Cities job market is still weak. Job creation continued its three-month slowing and moved into negative territory in the most recent report. Although employers have reclaimed about 10,000 of the 18,500 jobs lost during the April crash, there are almost 10,000 fewer jobs than this time last year. Since April, most of the gains have been in the Leisure and Hospitality sectors, which suffered the hardest hit when the pandemic struck.

The latest Bureau of Labor Statistics (BLS) report also shows the unemployment rate has increased to 6%, and employment is down by almost 4,000. At the same time, the Jobs4Tn website lists 3,800 jobs being advertised in the Kingsport-Bristol metro area and another 2,498 being advertised in the Johnson City metro area.

Investor inquiries, more traffic to web listings, and plans for new construction add some luster to the otherwise dire commercial outlook.

- Commercial Realtors report they are getting more inquiries from California and New York investors – especially in the Kingsport market.
- The Bristol market continues moving ahead on the momentum provided by approval for a casino.
Johnson City plans to start the West Walnut Street project this spring, and work at Exit 17 continues to fuel interest in Gray’s eastward commercial and residential real estate expansion. When the Exit 17 interchange is completion, the area will be more attractive for retailers to move in. There are two retail projects – the Boones Creek Development project and the Promeade at Boones Creek – planned.
- There has also been an uptick in investor interest in rental housing – both short and long-term.
The 2020 year-end report on commercial permits is scheduled for release next month. It’s projected that it will show an increase in the number of new permits from the 2019 total.

Tri-Cities 2020 commercial real estate transactions up

It wasn’t a big increase, but during a year that saw the worst crash since the Great Depression, the local commercial real estate market posted a small 2020 transactions gain.

There were 361 commercial sales and leases last year – one more than during 2019, according to the Northeast Tennessee Association of Realtors (NETAR) commercial transactions report.

“Vacant land, office, and industrial deals continued as market leaders and balanced the slum in retail-commercial and shopping center activity,” Cassie Petzoldt, chair of the NETAR Commercial Committee, said. Last year was also the continuation of a trend that saw more deals for less money, she added.

There were 37 more listings on NETAR’s Commercial Multiple Listing Service (CMLS) and the regional Multiple Listing Service’s (MLS) during December than during December 2019 for a 4.8 percent year-over-year listing growth rate.

Fewer monthly average listings in each of the CMLS commercial sectors last year than in 2019 was the norm for last year. Flex does not categorize its listing. There were 76 fewer Flex commercial listings in December than December 2019.

Web traffic for CMLS was down by 15 percent in December. At the same time, one-on-one inquiries continued to increase. According to local commercial Realtors. There has also been an increase in activity – especially in Kingsport restaurant venues – from New York and California investors.

The 2021 outlook for commercial real estate is for continued activity in the land, office, and industrial sectors. There hasn’t been much new construction for these properties, so relocation to accommodate post-pandemic business and renovations are big factors.

Warehousing should also be a high-interest sector as the e-commercial firms continue to improve their last-mile infrastructure.

Nov. commercial real estate transactions, listings, traffic up

There shouldn't be any argument that the local economy is on shaky ground. The labor market would have to create 8,500 new jobs by December to match the 2019 annual total. And there are hundreds if not thousands of locals wondering what they will do if there's no second round of pandemic relief.

But at the same time, the NE Tenn. – SW Va. commercial market is lagging last year's performance by only 3.7%. Compared to the 21% gain in home sales, that's a weak showing. But it's better than the doom and gloom presented in some markets.

The local commercial real estate market is slowly moving toward balance even though the recovery continues to be uneven. And it typically takes about three years to recover from a recessionary trough. Still, November's transactions, listings traffic, and total listings were positive despite the hospitality and retail sectors' drag.

Last month's transactions were 21.4% better than last year. So far this year, there have been 313 transactions compared to 325 during the first 11 months of 2019.

"The commercial market is looking better than some expected it would be in this pandemic economic," said Cassie Petzoldt, chair of the Northeast Tennessee Association (NETAR) of Realtors Commercial Committee.

There were 825 listings at the end of November. That's a 1% increase from October. And listing traffic on NETAR's Commercial Multiple Listing service was up 32.4% from October. "That's a sign investors are shopping for opportunities," she added.

Sales and leases for office properties continue to lead CMLS activity in November. They were up 11.1% from last year.

Industrial transactions were the second-best performing sector with a 22.2% increase over last year.

Vacant land sales were up 9.5% percent.

While the retail-commercial sector has the weakest performance so far this year (down 36.7%), it had the second-highest number of transactions at the end of November.

Shopping Center sector sales and leases were down 24.9%.

Third-quarter new commercial building permits are also encouraging. They were up 13.3%, while neighboring metro areas saw declines.

It's not necessary to study building permit data to see the green shoots of expanded development and redevelopment in the commercial sector.

The twin cities are an example. Although much of the visual demonstration of the casino-driven demand won't hit full stride for a while, downtown development is humming.

Meanwhile, Johnson City is seeing the links to a downtown, ETSU, and West Walnut Corridor come together. David Lefemine is one of the commercial practitioners at the center of the effort.

"The Model Mill is now functional. Work is and will continue for a while, but some of the prime occupants are beginning to move in." And plans for a new hotel on the old Mize site are well underway, he added.

Add to that new parks, restaurants, and a slowly lowering of speed limits to something comparable to school zoning, and the area will transform into the link that binds the other areas together.

Downtown development and redevelopment continue to advance. The recent purchase of the property that used to house a Kmart and Kroger by Ingles Markets will be a shot in the arm for south Johnson City.

Similar green shoots of commercial development can be found in some infill and expansions in West Kingsport.

Whether or not those green shoots expand and how fast remains linked to the recovery of the local economy outside the real estate industries. At the top of the list of things that will accelerate the process is controlling COVID-19.

Lawrence Yun, chief economist for the National Association of Realtors (NAR), recently observed that many consumers have been saving during the pandemic. He says that could lead to a "spending spree next year on retail, restaurants and other businesses – and tipping off a robust commercial real estate recovery.

"This is a very positive upside to all of this savings. There is the potential to unleash savings and power back to the economy once things open up," he told Catherine Mesick, a free-lance writer and member of the NAR Advocacy Group.

Meanwhile, the commercial sectors that have and continue to outperform their 2019 performance levels keep moving slowly ahead on a road to recovery where there are a lot of question marks.