Tri-Cities commercial real estate sales flat in 2019; Sales, lease transactions combined for best year since 2016

There were 103 commercial real estate sales of properties listed on the Northeast Tennessee Association of Realtors (NETAR) Commercial Multiple Listing Service (CMLS) in 2019. That’s five below the 2018 total and doesn’t include sales listed on other commercial listing services. (See attached chart).
When combined with CMLS lease transactions for last year, the total local commercial real estate market had its best year since 2016.

While the inclusion of Kingsport on a list of the 15 cheapest places to buy land in America last week got a lot of social media attention, last year’s land sales across the region were flat with a small decline for the second straight year.

The property types that saw the most sales were retail commercial and industrial.

Local commercial real estate practitioners are reporting one of the inquiries they get is for industrial sites.
John Speropulos, Mitch Cox Realtors President, said in the year-end least transaction review, “There’re are not a whole lot of industrial on the market, and what’s there is not what many clients are looking for.” Of course, they is always the option to repurpose and upgrade existing industrial sites, but “there’s a little local sticker shock” associated with those costs he added.

Michael Green, Green Commercial Realty, added that industrial property was the “the most obscured property segment of all. I think it’s because we compete for users on a far wider geographic plain.”

CMLS’s current market statistics shows 1.4 million square feet of commercial listed for sale in the four-county Kingsport-Bristol MSA and another 736,066 square feet for sale in the three-county Johnson City MSA.
While assessments for 2020 vary, local commercial practitioners are “conservatively optimistic” about the New Year local conditions. The local market will likely feel the same slower growth projected for the national commercial real estate market. That’s a typical reaction during an election year.

The “election year” lull hasn’t dulled the positioning in the Bristol market as the quest to locate a casino in the Twin Cities plays out. An equal level of interest continues in the Johnson City market over the proposed development at Exit 17 in Gray.

Listings for land total 1,271 acres in the Kingsport-Bristol MSA and 1,288 acres in the Johnson City MSA.

Tri-Cities 2019 commercial lease transactions best performance since 2016

Tri-Cities commercial real estate lease transactions closed out 2019 with the best performance since 2016.
There were 127 transactions at year’s end, according to the Northeast Tennessee Association of Realtors (NETAR) Commercial Multiple Listing Service (CMLS). That total doesn’t include transactions listed on other sites. (See attached chart)

The type of property that saw the most activity was shopping center parcels, but only barely. Office leases trailed by only one lease. There was also heavier activity among retail-commercial transactions than where were in 2018. A shopping center listing is typically space in a multi-tenant building while a retail commercial listing is often a free-standing building.

Retail markets are a hot topic as the region begins the New Year. Opponents to proposed retail, development at Exit 17 in Gray have put up a defense for what is being called “retail poaching.” Pinnacle developer Steve Johnson is maneuvering to see legislation that a new development like the one proposed in the Gray Exit could not poach clients from the Pinnacle. Varied news reports on this issue can be found on the NETAR CMLS Facebook Page

Looking at the bigger retail picture Michael Green, Green Commercial Realty, says, “It’s interesting to me that retail and shopping center leasing has shown such strong numbers this year (2019). But it’s attributable to a few strong players commanding the lion’s share of the submarkets.” His comments were made days before the dust-up over the proposed Exit 17 development.

“In Johnson City, several of the older centers have got major capital expenditures and resulting occupancy improvements that were impressive. Of course, the Pinnacle continues to dominate the region for relocations and new tenants and will continue that trend until a project emerges with a location and value propositions that can compete. Unfortunately, our malls will continue to be challenged to transition to multi-purpose and entertainment venues to stay relevant. As for unanchored retail, well, it’s best to have a location with staying power and other tenant appeals because rent compression is accelerating.”

Some of that rent compression was recently cited as one reason for the closing of retail outlets at the Pavilion in Kingsport. There has also been some chatter about Pinnacle tenants looking to relocate due to their current rents and inquiries from Kingsport retailers looking to relocate to the Johnson City area to “follow where their market is more concentrated.”

While NETAR’s office lease transactions showed weaker performance than 2018 that’s not the whole picture since the commercial real estate market is spread over several listing services. In an earlier report on mid-year market activity John Speropulos, president of Mitch Cox Realtors, noted that “a fair amount of office and industrial space” had been absorbed in 2019.

That contrasted with the national market assessment. Lawrence Yun, senior vice president and chief economist for the National Association of Realtors, and other economists at a recent meeting reported a decline in industrial and office activity across all regions during Q3. The region that fared best in that climate was the south.
Green said he was seeing some office tenants covert to owners, which is generally positive. “I think the office market is trending toward a similar scenario as the apartment market. As we continue to be oversupplied, the older, less well-located or outdated properties will be vacated and/or rents adjusted to break-even. Still, we’ll see market-side quality improves from the attritions.”

The hot property type for the region continues to be in the industrial class.

“There’re are not a whole lot of industrial on the market, and what’s there is not what many clients are looking for,” Speropulos said late last year. Of course, they're always the option to repurpose and upgrade existing industrial sites, but “there’s a little local sticker shock” associated with those costs he added.

Green called the industrial inventory “the most obscured property segment of all. I think it’s because we compete for users on a far wider geographic plain.”

Here’s how the mid-January NETAR CMLS listings looked for the seven-county Johnson City – Kingsport – Bristol TN VA Consolidated Statistical area:

Industrial – 38
Office – 174
Retail-commercial – 97
Shopping center – 68
Vacant land – 190
Farm/ranch – 2
Multi-family – 6

The total space listed for sale is 736,066 square feet, while the lease total is 2.1 million square feet. There is a total of 2,559 acres of land listed.

Optimism, momentum increases for Tri-Cities commercial real estate market

Local Commercial Realtors are more optimistic about the Tri-Cities market than some of the data supports. But some of that enthusiasm is based on momentum that won’t show up until Q4 reports are available.

One Tri-Cities data bright spot is commercial lease transactions reported by the Northeast Tennessee Association of Realtors (NETAR) Commercial Multiple Listing Service (CMLS).  During the first nine months of this year, there were 94 lease transactions of CMLS properties. That’s a 27% increase from last year and the best three-quarter performance since 2016. Lease transactions in 2017 were the previous nine-months best at 91.

Shopping Center leases topped this year’s Q3 year-to-date total with 33 leases followed by 20 leases of office properties. There were 13 leases for industrial properties and 17 retail-commercial.

Commercial sales had a good third quarter – up 3% from last year- but the 370 sales during the first three quarters were 2.9% below last year, and the sales volume of $177.4 million was 31.7% less than the same period last year. That data comes from the Appalachian Highlands Dashboard for Real Estate Analytics – a new venture by Don Fenley, supported by TechPoint’s Austin Ramsey and TCI Group’s Nina Heffner, and underwritten by Jerry Petzoldt TCI Lifestyle Investments.

The Dashboard’s year-to-date report shows there have been two multi-million sales and 30 million-dollar-plus commercial sales so far this year.

Sales for all real estate properties so far this year total 8,927 (down 0.6% from last year) with a total sales volume of $1.4 billion (down 3.7% from last year). The first nine months of last year was the strongest period since 2016 with 8,982 sales with a total sales volume of $1.5 billion.

There were 450 new commercial building permits for the seven-county Tri-Cities region during the first three quarters, a 14.7% increase from last year, according to The Market Edge’s Q3 Commercial Permit Trends Report. The $189 million permit value is a 3% increase from the same period last year.

Only two of the four area metro regions reported more permits and higher permit values so far this year. The Knoxville region’s permit total was up 3.7% and the value was up 14%. The Chattanooga and Asheville regions had double-digit declines in the number of permits and permit value.

Washington Co. TN and Sullivan Co. permits dominate the report since they are the region’s largest markets. Washington and Greene counties recorded the biggest increase in permits so far this year. Washington Co. posted 41 more permits than last year while Greene Co. recorded an increase of 16 permits. The largest gain in permit value compared to the first nine months of last year was Washington Co. ($72.4 million, up 59%) and Hawkins Co. ($2.1 million up 164%.) Sullivan Co. has the highest permit value for the period ($76.2 million, up 17% from last year).
Four local commercial practitioners size up the market and coming year CLICK HERE

Recession unlikely in 2020 - Slower Growth, Price Gains to Continue

A group of prominent real estate industry economists today released a consensus economic and real estate forecast that projects continued but slowing growth in 2020. Meeting at the National Association of REALTORS®’ Washington, D.C., headquarters for the first-ever Real Estate Forecast Summit, the economists said they expect the U.S. economy to continue expanding next year and real estate prices to keep rising. To create the forecast, NAR surveyed the economists Dec. 2-5, and their responses were compiled and averaged.

“Real estate is on firm ground with little chance of price declines,” says NAR’s Chief Economist Lawrence Yun. “However, in order for the market to be healthier, more supply is needed to assure home prices as well as rents do not consistently outgrow income gains.”

Yun is one of 16 economists participating in today’s Summit, along with Leslie Appleton-Young of the California Association of REALTORS®; James Chessen of the American Bankers Association; James Gaines of the Real Estate Center at Texas A&M University; Danielle Hale of; Danielle Nanayakkara-Skillington of the National Association of Home Builders; Brad O’Connor of the Florida REALTORS®; and others.

Recession remains unlikely but not out of the question in 2020. The economists predicted a 29% probability of a recession with forecasted gross domestic product growth of 2.0% in 2020 and 1.9% in 2021. The group expects an annual unemployment rate of 3.7% next year with a small rise to 3.9% in 2021.

Asked what action the Fed might take in 2020, 69% of the economists said they expect no change in the federal funds rate (the rate at which banks borrow money), while 31% expect the Fed to lower the rate next year. The group expects the 30-year fixed-rate mortgage to average 3.8% in 2020 and 4.0% in 2021.

Getting comfortable with growth in Boones Creek area

David Lefemine, a Johnson City Commercial Realtor, said after the vote to deny a rezoning request that the work going on on the I-26 interchange will likely mean more business growth will occur in the Boones Creek area. He said there’s going to be increasing pressure for business growth in that area.

“Because of this interchange and everything that’s growing out there, you’re going to see business and you’re going to see annexation requests made time and time again,” Lefemine said. “It’s just a matter of whenever everybody is comfortable to proceed forward.”

Read the full Johnson City Press report at "