Commercial transactions down, interest in area remains

Published 1:55 pm Thursday, February 16, 2023

Commercial Realtors report they are busy – some busier than last year – while transactions in the Tri-Cities area got off to a slow 2023 start.

Completed sales and leases for January were down 17% from last year. That’s not the only challenging number that shows up in the Northeast Tennessee Association of Realtors (NETAR) January report. Inventory is down 24%, new listings are down 17.3%, and the three-month transaction trend is down 45%.

As usual, office transactions led the regional list of completed deals, followed by retail-commercial, then vacant land. There were 34 transactions during January compared to 41 last year and 42 in January 2021.

Despite January’s weak report, NETAR Commercial Committee Chair Jerry Petzoldt says, “the local market landscape hasn’t really changed. Things are not that much different from a year ago. There’s a lot of optimism in commercial real estate because investors are sitting on so much cash. Couple that with our reputation as a rural growth market, and you see a lot of interest in both the local residential and commercial real estate markets. Interest in our area is high, and investors want a piece of it.”

The challenge is explaining the market to investors used to looking at one economy. While our core region has a population of a little over 150,000 with a $50 billion a year economy, we have four similar city economies, and each has some distinctions that don’t precisely fit into a regional explanation,” he added. Some investors have a hard time wrapping their plans around that.

One encouraging part of the National Association of Realtors (NAR) commercial outlook that has local implications is “the growth in brick-and-mortar stores will be mainly driven by smaller shops in neighborhood centers. The trend is clear. Due to remove-work policies, neighborhood stores are on the rise, and this trend will continue. Consumers like to shop locally, and neighborhood stores offer convenience and personal interaction.”

However, competition for prime space continues to be a local challenge – especially for the restaurant industry. Realtors report continued inquiries from chains not represented in the local market who struggle with rents. This is especially true in the Kingsport market, where rents for prime locations are shutting some investors out of the market. There are secondary locations open, but investors are not all that willing to gamble on them.

The local multi-family sector has slowed down as competition is balancing the lack of vacancies and rent increases. It should still continue to be a robust sector as long as the region continues to attract new residents who struggle with the local housing shortage.

Inflation, interest rates, supply chain, and geopolitical events are the key factors determining how commercial real estate performs in the following months.