Local commercial real estate weathering economic instability

by Don Fenley

Tri-City, Tennessee – The outlook for local commercial real estate is positive despite sluggish trading, concerns about banks’ reaction to stress from a string of bank failures and fears of inflation. Here is the view at 30,000 feet.

The region has experienced steady economic growth in recent years, creating strong demand for commercial real estate. Currently, the vacancy rate of commercial facilities in the area is low, and this trend is expected to continue in the future.

One of the primary drivers of commercial real estate demand in the Tri-Cities is the region’s strategic location. The area is located at the intersection of several major highways, making it a prime location for businesses that need to transport goods and services. Additionally, the region’s low cost of living and high quality of life make it an attractive destination for businesses and professionals alike.

As the economy continues to grow and demand for Tri-City commercial properties remains strong, property values ​​are likely to continue to rise. This could be an attractive investment opportunity for those looking to enter the commercial real estate market in the region.

The short-term view is even more troubling.

April’s Northeast Tennessee Association of Realtors (NETAR) commercial market report and trade tracking survey showed negative numbers across the board. But it’s not all bad news. For example, a three-month trend comparison lags behind last year, but we see steady growth year-to-date. This is one of those cases where a decrease in attrition rate is progress.

The most active sectors are industrial, office, retail and multifamily, which continue to be at the center of the oxygen-hungry vortex in local commercial markets.

NETAR Commerce Commission Chairman Jerry Petzoldt said the pressure on the industrial sector is increasing. “We are suffering from the same shortage situation we are seeing in the housing sector, which is driving up rents and prices for these industrial properties.”

Progress at the submarket level is often overlooked, but this is important as SMEs are the core of local economies. The retail situation in one provincial city was benchmarked when the Department of Economic Development took to the streets to survey the inventories of small businesses in second-hand complexes. Kingsport’s director of economic development, John Rose, said a walking tour of the center, which has two or more units, counted 246 people. As a bonus to the commercial real estate walkabout, he had a 91 percent occupancy rate for these centers.

So far this year, the largest number of transactions tracked locally have been multifamily (28), followed by offices (22) and commercial (21).

Residential investment properties, both single family and multifamily, are active. While the number of single-family investment properties has declined over the past two years, the number of apartments and rental properties has increased and may increase further in the future.

Recently, the demand for housing complexes and rentals has decreased. Some apartment complexes that previously had waiting lists have removed their notices from their websites. Some offer incentives for new renters and referrals. And the response to some construction and rental townhome projects has only halved occupancy rates.

The labor market in the region remains strong and shows no signs of softening yet. Consumers are tightening their purse strings, but not as much as retailers fear.

So far this year, NETAR’s commercial multiple listing service (CMLS) and Flex’s active commercial inventory are down nearly 20%. New listings fell 37.6%, and year-to-date listings fell 21.8%.

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