Commercial real estate continues above pre-pandemic performance

Commercial real estate (CRE) transactions hit a slump in September but it didn't dent the local market's momentum. So far this year, completed sales and leases are up 63.4%. The trend is at a three year high.

"The local commercial market recovery continues bubbling up," said Northeast Tennessee Association of Realtors (NETAR) Commercial Committee Chair Cassie Petzoldt in the association's September report. "We've seen increased activity from solid local and out-of-area players during the past three to six months. The local economy is experiencing a somewhat uneven recovery, but demand for commercial real estate continues building. The region's high transmission of the delta variant and labor shortage has held back a couple of sectors, so the overall labor market is underperforming expectations and demand."

The office and retail-commercial sectors continue to lead sales and leases. Industrial activity slowed to its second-lowest level last month primarily due to the lack of inventory.

So far this year, there have been 420 commercial transactions in the Tri-Cities region. During the first nine months of last year, when the commercial market was struggling with the effects of the pandemic, there were 257.
The year-to-date sales and lease totals for the top-performing sections are:
· Office – 74
· Retail Commercial – 71
· Industrial - 43
· Vacant Land – 33
· Shopping Center – 24

According to the National Association of Realtors Quarterly Commercial Market Survey, secondary markets continue experiencing increased office occupancy due to the in-migration. The local market is too small to be in the secondary markets class that has been one of the local drivers as it becomes clear that remote work is here to stay.

Although there has been an increase in multi-family activity, most of the listings and deals for that sector are not part of the two local commercial databases. There are several listings on national databases and a recently closed deal on a 60-unit motel conversion in Bristol, VA. Most of the multi-family activity continues to be in the new development portion of the sector.

Active inventory in the two local commercial databases was 805 listings. That's down 6 percent for September last year.

There were 74 new listings last month, up 111.4 percent from September last year. The Industrial, Office, and Vacant Land sectors were the only sectors where new listings were up from the August total.

Tri-Cities commercial real estate activity hits high point

 Tri-Cities commercial real estate had one of its best-ever months in August.

There were 64 commercial leases and sales, up 82.9 percent from last year. It's also noteworthy that activity in the Commercial-Retail and Industrial sectors almost doubled from July while Office transactions cooled by a third. Those three sectors are this year's leading performers in the region's market.

So far this year, the 65 deals in the Office Sector outnumber those in Commercial Retail by one.

There were 12 new transactions in the Industrial Sector, bringing the year-to-date total to 41. During the first nine months of last year, it had 25 transactions. So far this year, there have been 375 commercial transactions. During the first nine months of last year, there were 149.

"The labor shortage has tempered some activity, but not the enthusiasm in the Commercial-Retail and Shopping Center sectors," said Cassie Petzoldt, Chair of the Northeast Tennessee Association of Realtors (NETAR) Commercial Committee. “The local transaction volume has returned to pre-pandemic levels.

The biggest potential headwind is how the Covid Delta variant surge will affect the local economy. At the end of August, it had not significantly dampened the local commercial real estate landscape."

So far this year, the real estate industry continues to lead the local economy. Driven by low mortgage rates, new residents moving to the area and the work-from-home trend, the new and existing home markets remain robust. There is more activity in the multi-family sector. And construction in both the commercial and residential sectors is on the upswing.

New commercial listings, active inventory, and web traffic also posted double-digit increases in August, according to NETAR's monthly report.

The only sectors where inventory was down from July were industrial and vacant land. "That can be attributed to the surge in transactions," Petzoldt said. Inventory was stable or slightly higher in all other sectors.

There were 349 new commercial building permits in the Tri-Cities during the first half of the year, according to The Market Edge, a Knoxville-based building permit compilation service. That's 48 more than the previous year. The permit value of this year's new permits was $97.5 million compared to $104.8 million during the previous year.

Most of the new permit activity was in the region's two largest counties. Washington Co. Tenn. had 131 permits, up from 113. Sullivan Co. had 126 new permits, up from 99 during the first half of last year. The largest gain was in Washington Co. Va. – 47 new permits, up from 29 last year.

Local commercial real estate market heads for banner year

Commercial real estate scored another strong month in July with the Retail-Commercial and Office Sector accounting for almost half of all transactions.

Transactions were up 96.6 percent from July last year, according to the Northeast Tennessee Association of Realtors (NETAR) Commercial Sales Report.

"There were more transactions last month than July last year or July 2019. So far this year, we've logged 311 transactions from the two primary local commercial listing services. That's only 58 closed deals from the total for all last year." Web traffic to our listings is up. So are inquiries from local and out-of-state investors. They are shaking off the residue from the recession. Even though there are still concerns about the economy, they're looking past the worst access to labor since the 1970s and inflation for opportunities in the post-pandemic economy, she added.

There were 57 transactions from the local listing services in July. So far this year, there have been 60 sales and leases of office space. Most were in the Johnson City metro area, which is starting to show signs of absorption of that type of inventory. This time last year, there were 83 office listings. Last month there were 37.

The Kingsport-Bristol metro area has seen an increase in office sales and leases but not as much absorption. There were 53 office listings in July compared to 81 July last year.

A similar situation exists in the Retail-Commercial Sector. It saw eight transactions last month. So far this year, there have been 50. Much of that is the reopening of the hospitality, retail and foodservice businesses.

The Johnson City metro area has 34 listings compared to 50 last year. Kingsport-Bristol had 39 listings compared to 40 last year.

Like the rest of the U.S., the Tri-Cities's commercial inventory is over retailed when compared to the rest of the industrialized world. Some of that is a remnant of overbuilding in the past. Another reason is the continuing trend toward online retail replacing some of the demand for bricks and mortar space. That's why some investors are beginning to look at repurposing vacant offices and retail space to plug some of the gaps in local housing markets.

Industrial is the only local sector where inventory is tight. There were five deals in that sector last month and 29 so far this year. During the first seven months of last year, there were 20 industrial transactions.

Another sector seeing a lot of activity is multi-family. Many of the large transactions don't show up on the local commercial listing services. The properties are bought and sold by out-of-state individuals and investment firms. Currently, several large complexes are being planned some have changed hands.

There were 87 new commercial listings last month, up from 52 last year. The total for new listing so far this year is 508. During the first seven months of last year there were 361.

There were 835 listing on the two local commercial services during July, down 5.2 percent from last year.

Commercial real estate gains momentum despite June slump

The local commercial real estate (CRE) market continues gaining momentum despite a June transaction decline. The decline from May was the steepest drop in the past three years. But it is not representative of the mid-year trend.

Reasons vary, but most of the decline is a return to a pre-pandemic transaction level in the Retail-Commercial, Industrial and Office sectors. Transactions in those sectors began building late last year as investors and business owners began preparing for the post-pandemic economy. They spiked again in March, April and May this year.

Transactions averaged 30 a month in 2019 and 31 a month in 2020. At mid-year, they are averaging 42 a month and the 3-month moving average is 45.

There were 28 transactions in June, up from 21 June last year. During the first half of the year there were 254 transactions. Last year there were 162. Since that comparison is skewed by last year's pandemic economy a comparison to the first half of 2019 is a better example of how well today's CRE market is doing when compared to a typical year. Mid-year transactions this year were 24.5 percent better than the first half of 2019.

"There's actually a lot more activity in the commercial sector than the data show," according to Cassie Petzoldt, Northeast Tennessee Association of Realtors (NETAR) Commercial Committee Chair. "The volume of investor inquiries, commercial construction and optimism is running high. Several commercial Realtors report the market is the busiest they have ever seen." Activity in the industrial, office space, the retail sector and vacant land continue to grow as businesses and investors ready for a post-pandemic economy, she added.

The local labor shortage is also a headwind for many businesses – especially restaurants and retail outlets. Tri-Cities employers are adding new jobs at an average rate of 560 a month so far this year. At that rate, it will take 10 months return to a pre-pandemic level.

The only sector where transactions increased from May was commercial vacant land. They were up by one. They have averaged four closings a month so far this year. There were also nine new listings for commercial vacant land in June.

Combined with vacant residential land sales commercial vacant land closings totaled 228 in June. That's up 58 percent from last year and a little more than 80 percent higher than the first six months of last year.

Even though Office and Retail-Commercial sectors declined in June, they led transactions for the first half of the year. So far this year, there have been 44 office sales and leases, five more than last year. Forty-two Retail-Commercial deals were completed during the first half of this year, up from 24 last year.

Active inventory made a slight gain over May but was down 7.7 percent from June last year. The year-over-year decline can be attributed to the surge of transactions during the first five months of this year absorbing some of the excess inventory.

There were 78 new listings, up from 43 last year. During the first six months of this year, there have been 410 new listings, up from 309 last year.

Local commercial real estate picks up momentum

Commercial real estate transactions were up 65 percent from last year in April. Transactions have more than doubled during the past two months, with a notable April increase in the retail-commercial sector, according to the Northeast Tennessee Association of Realtors (NETAR).

“The transaction and new listings growth are welcome signs of the economy beginning to unmask,” Cassie Petzoldt, chair of the NETAR Commercial Real Estate Committee, said. “The activity that begun building during the fourth quarter last year has expanded into this year and is expected to pick up momentum as the economy continues improving.”

So far this year, transactions are 44 percent better than the first four months of last year when the local commercial sector was in the throes of a reaction to the pandemic-induced economic shock.

The office sector continues to be the most robust sector with 34 transactions so far this year. It was eclipsed in April by 13 new retail-commercial transactions. The increase can be attributed to the improving economy and preparations for what some believe will be a spending splurge as summer approaches.

The service sector – especially restaurants – continues to struggle with a labor shortage to accommodate the higher consumer demand.

There were 846 commercial listings on local commercial real estate databases last month. That’s down 10.6 percent from last year, but new listings are increasing. There were 78 new listings last month compared to 23 April last year.

Vacant land continues to be a top listing category. Listings have increased to 488 from 348 during the first four months of last year. Those listing include commercial and residential land offerings. So far this year, vacant land sales are up 125 percent.