NETAR CMLS Blog
Tri-Cities commercial real estate (CRE) transactions continued laboring with the economic fallout of COVIX-19 in May. The short-term numbers are about what you would expect.
May sales were down 40% from last year while lease transactions were down 67%, according to the Northeast Tennessee Association of Realtors (NETAR) Commercial Multiple Listing Service (CMLS).
The longer-view is a little more encouraging. Year-to-date sales were 29% lower than the first five months of last year, and leases were down 29%.
Total transactions were down 32% from the first five months of last year.
But while transactions have slumped, listing traffic to local listings increased 17% from April. At the same time individual traffic and inquiries on listings has increased.
According to Deliotte Insights, “over the past century, external shocks such as an epidemic or a pandemic followed by an economic downturn have had an immediate to short-term impact on CRE asset prices, but minimal influence on transaction activity. However, the industry recovered from these events at varying paces: While event-oriented downturns showed a quicker rebound, longer-term events, such as the 2008 recession, resulted in a more protracted recovery. As a rule of thumb, the industry has historically lagged the broader economy by six months in terms of experiencing the effects. But the expansiveness, depth, and unprecedented reach of this pandemic has started impacting the CRE industry much sooner.”
As the listing traffic shows, there is increasing interest from investors who look past the headlines for opportunities. And there have been some noteworthy transactions – more about those when the deed transfers are completed, and the Appalachian Dashboard for Real Estate Analytics issues its mid-year report.
There were 547 listings at the end of May down from 586 in April.
Commercial space for sales in the Johnson City Metropolitan Statistical Area (MSA) 76,128 sq. feet. Down from 787,642 in April.
Commercial sales for lease totaled 487,295 sq. ft. down from 515,671 in April.
Commercial space for sales in the Kingsport-Bristol MSA was 1.3 million sq. ft. drown from 1.4 million in April.
Commercial space for lease was 435,821, down from 492,934 in April.
Local listings traffic took a hit during the last weeks of March and the first half of April as public attention focused on the coronavirus pandemic. It picked up during the latter part of the month and totaled almost 4,000 views for the week ending Saturday, May 9.
Year-to-data sales and lease transactions are lagging last year’s performance, as are Q1 overall real estate sales and the sales volume. There were 122 sales during the first three months of this year compared to 144 last year. The volume was $60.8 million, down $56.9 million from the same period last year, according to the Appalachian Highlands Dashboard for Real Estate Analytics. More details about those transactions and the five-year trend will come later this month with Commercial Real Estate Building Permits Trends Report.
Office sales and leases continue to be the strongest CMLS performers. The short and long-term office market landscape are getting renewed attention since the imposition of work-from-home and remote working is accelerating those fledgling practices
Lawrence Yun, the National Association of Realtor’s (NAR) chief economist, said the question is whether businesses will increase space to accommodate physical distancing for workers after the all-clear is sounded. Or will they continue – and maybe expand – the working from home and remote work practices. His position was remote working is a trend – one that would increase how office space is used. His comments came during a Zoom update on the effects of the pandemic on commercial real estate.
Shannon and Jose Castillo are at the forefront of the remote working infrastructure in the Tri-Cities. They think demand for co-working space like their Spark Plaza in Johnson City, Sync Space in Kingsport, and Cowork Bristol will increase. Shannon is also a commercial Realtor with Mitch Cox Realtors. Jose is a Johnson City motivational speaker and entrepreneur.
Now that millions of employees have experienced the world of remote work, some won’t want to go back to the office – especially not before there’s a Covid-19 vaccine. Some will likely never want to go back. Sixty percent of workers participating in a Gallup survey said they would like to work from home as much as possible even after the pandemic is over.
“It’s easy to see why: No need to spend time and money commuting, you can escape coworkers when you need to focus, and you have more control over your day. Granted, not all coworkers have the option to skip the office. But for those who do, this shift may be permanent, according to a New York Times report.
That has new possibilities for areas like the Tri-Cities that want to grow their populations with workers who have good jobs but have a poor track record of attracting them. It enables another desire that the pandemic is motivating those who can to relocate from high-density areas to more suburban and rural areas.
The full report with charts can be accessed at https://donfenley.com/2020/05/10/corvid-19-spotlights-office-space-trend-local-cre-markets-lag-last-years-performance/
March traffic to the CMLS web site declined 21% for the January and February levels. Commercial practitioners also reported that some of their clients were getting antsy as the initial reports of the Coronavirus pandemic began taking on a local focus in mid-March. That doesn’t mean interest is down, but there was a lot more looking than doing.
Sales transactions outperformed leases during the quarter and were only slightly lower than Q1 2019 sales. Lease transactions declined 26.5% from last year.
The top-performing sales subsection for Q1 was for office listings. There were 10 sales, up from four Q1 last year. Office sales also accounted for almost half of the sales transactions for the quarter.
Office listings also were the leader in lease transactions. There were nine transactions unchanged from Q1 last year.
Charts and graphs can be found on the NETAR CMLS Facebook Page.
At the same time, there was and continues to be pent up optimism focused on the fate of a casino in Bristol, Va., and a pending major development in Boone’s Creek. Those are just two examples and they’re hand-in-hand with the unknowns of this year’s presidential election and effects of the coronavirus on the economy.
Some economists are saying the US may already be in a recession – or very close to it. Others are more reserved. What’s for sure is it won’t be business as usual for a while.
Goldman Sach’s forecast is for “GDP growth slowing to 0.7% in the current quarter and grinding to a halt in the second quarter. The third quarter likely will see 1% growth, and the fourth quarter is expected to post a 2.3% expansion.”
There were more local CRE sales than there were in 2018 – or since 2016. But volumes were down 10.9% from 2018 and 9.1% from 2017, according to the Appalachian Highlands Dashboard for Real Estate Analytics. There were 639 sales compared to 478 in 2018. The 2019 sales volume was $361.6 million compared to $405.8 million in 2018.
Combined lease transactions from the Northeast Tennessee Association of Realtors (NETAR) Commercial Multiple Listing Service (CMLS) were up by 10 from 2018 while there were five fewer sales. When combined, there were 230 transactions, up five from 2018.
There were 519 new commercial building permits last year – a 6.7% increase over 2018. The total permit value was $225.2 million, down 9% from 2018, according to The Market Edge’s year-end Commercial Building Permit Trends Report.
Here’s how new permits and value looked across the rest of the region:
Chattanooga. New permit down 25%. $445.6 million value down 27%.
Knoxville – New permits up 12%. $1 billion value up 14%.
Asheville – New permits down 23.8%. $348.4 million value down 31%.
DRILL DOWN 2019 v. 2018
Washington Co. TN
• sales, up 7
• Sales volume $133.7 million, down $53.2 million
• 175 new permits, down 29
• $87.9 million permit value, up 33%
• 175 sales, up 115
• Sales volume $69.9 million, down $49.1 million
• 164 new permits, down 4
• $90.4 million permit value, down 10%
• 64 sales, up 4
• Sales volume $38.6 million, up $13.4 million
• 72 new permits, down 12
• $16.7 million permit value, down 17%
• 56 sales, up 2
• Sales volume $32.3 million, up $1.5 million
• 22 new permits, down 12
• $2 million permit value, down 82%
• 40 sales, up 10
• Sales volume $25.7 million, up $16.6 million
• 65 new permits, up 5
• $23.9 million permit value, down 49%
• 35 sales, down 4
• Sales volume $10.7 million, down $7.7 million
• 14 new permits, up 8
• $12.4 million permit value, up 187%
• 31 sales, up 8
• Sales volume $40.6 million, up $31 million
• 24 sales, up 11
• Sales volume $5.2 million, up $492,694
• 20 sales, up 8
• Sales volume $361.5 million, down $44.3 million
Bristol VA, Johnson Co., and Unicoi Co. are not included in The Market Edge’s report.
The Appalachian Highlands Dashboard for Real Estate Analytics is a new venture by Don Fenley, supported by TechPoint’s Austin Ramsey and TCI Group’s Nina Heffner, and underwritten by Jerry Petzoldt’s TCI Group. CRE sales are recorded by deed transfers.