The local commercial real estate (CRE) market continues moving forward despite higher interest rates and inflation. According to the Northeast Tennessee Association of Realtors (NETAR) and the National Association of Realtors (NAR), it’s being driven by strong fundamentals in the most commercial sectors and land sales.
NAR’s Commercial Real Estate Metro Market Report says neither of the region’s two metro areas’ commercial markets is as strong as the overall U.S. Commercial Real Estate Condition Index; however, both areas’ overall economic conditions are stronger than they are nationally.
Here’s the broad assessment of the local metro areas’ commercial sectors according to NAR:
JOHNSON CITY MSA
The office property market is about the same as it is nationally
The industrial property market is about the same as it is nationally
The retail property market is not as strong as it is nationally
The hotel/lodgings property market is not as strong as it is
Average weekly wage $707
Wage growth, year-over-year, 14.2%
GDP growth down 1.1%
KINGSPORT-BRISTOL MSA
The office property market is not as strong as it is nationally
The industrial property market is stronger than it is nationally
The retail property market is not as strong as it is nationally
The hotel/lodging property market is about the same as it is nationally
Average weekly wage $761
Wage growth, year-over-year 10.1%
GDP growth down 4%
April transactions were up almost 21%, according to NETAR’s April Commercial Market Report. “Activity from out-of-area investors has increased and is now a primary market driver here in NE Tenn. and SW Va.,” said Cassie Petzoldt, chair of NETAR’s commercial committee. “Most of the out-of-state traffic for listings on NETAR’s Commercial Multiple Listing Service (CMLS) website was from Virginia. Georgia was a distant second place followed by South Carolina, California, and Ohio.” There were 661 active commercial listings at month’s end, down 21.9% from April last year.
Retail-Commercial and Shopping center sales and leases were last month’s best performing CMLS sectors.
Here’s how CMLS transactions look for the first four months of the year compared to last year:
Retail Commercial – 31, up 2
Office – 30, down 4
Vacant Land – 16, up 1
Industrial – 15, down 1
Shopping Center – 12, up 1
Flex commercial listings are not segmented.
177 sales and leases in the region
Strong sales and leases have reduced the region’s inventory by 21.9% from April last year. The CMLS inventory is down 25%, and the Flex commercial inventory is down 16.7%.
There were 69 new listings in April. Since new listings outnumber transactions, the market is slowly replenishing inventory.
The local multi-family has also been a strong performer so far this year. That doesn’t show up in the local transactions count because most of the multi-family market deals are handled by investors on national commercial listing services.
The multi-family component in NAR’s metro area report includes more data and context than what’s available from the local sources. It shows rents, demand and inventory increasing. The Johnson City metro area apartment property market is about the same as it is nationally, while the Kingsport-Bristol market is not as strong, according to NAR. A capsule of that report data compared to Q1 last year shows:
JOHNSON CITY MSA
Vacancy rate 2.2%, down from 3.2%.
Effective rent per unit $840, up 4.9%
Inventory, 6,441 units, up from 6,117
Transaction price per unit $38,824, up 44.9%
Market CAP rate 6.5%, down from 6.6%
KINGSPORT-BRISTOL MSA
Vacancy rate 3%, down from 4.5%
Effective rent per unit $872, up 8.9%
Inventory 5,404 units, up from 5,309
Sales price per unit $47,917, up 48.6%
CAP rate 6.6%, down from 6.7%
Northeast Tennessee’s housing market remained robust in April, but with new signs a shift is underway.
Mortgage rates have spiked to their highest level in 13 years, and significant questions about the market’s direction are giving some consumers reason to pause, said Northeast Tennessee Association of Realtors President Rick Chantry.
“But even with the uncertainty over inflation, higher mortgage rates, lack of inventory, and higher fuel prices, consumer demand is strong. The market is on a steady footing despite higher rates. New household formations are up, homes are scarce, and even though builders on bringing new homes on the market at a record pace, it’s not keeping up with demand.”
April’s existing home sales were down 2.2% from March, down 6.5% from April last year, and down 3.3% from the first four months of last year. Last month’s median existing-home sales price of $220,000 was down $5,815 (3.5%) from March but 13.7% higher than April last year.
There were 790 closings as of May 4. That’s 18 fewer than March, but the total will increase as deals not processed in time for the early count are added.
So far this year, 2,815 sales have closed. That’s 95 fewer than during the first four months of last year. “From a trend perspective, we’re seeing a flattening of sales and continued price increases,” Chantry said.
The typical home sale that closed last month was on the market for 42 days. That’s the amount of time from when the property was listed until the deal closed. The time on market was 56 days at the beginning of the year and 46 days in March. “That means demand is increasing,” Chantry said.
Another positive is new listings have been increasing since the first of the year. The full impact of those new listings hasn’t added much to inventory since buyers are snapping many of them up as soon as they go public. At the end of April, the region had 1.04 months of inventory. Balanced market conditions are five to six months of inventory.
April sales were down in all but three of the region’s 15 primary city and community submarkets. The median sales price was up in all but three of those markets.
