Sunday, Nov. 14 was a bellwether day for commercial real estate in Knoxville.
The Knoxville News Sentinel business section that day listed the recent property transactions, and the top 12 sales totaled $125 million. The list included four apartment complexes, seven self-storage facilities and a downtown office building.
For the 10 months leading up to that date, Knoxville commercial real estate experts noticed a significant uptick in transactions, including two new Amazon distribution centers, new office tenants moving into Class-A buildings that had recently been vacated, and most notably, industrial activity that was rivaling the residential market when it comes to activity.
The transactions did not stop.
Avison Young completed deals worth $42 million in November and December alone.
After the mess of 2020 we were left asking ourselves…why?
Industrial sector continues to soar
The industrial sector (warehouse, manufacturing, distribution) continues to soar. In Knoxville, there are two significant reasons.
The first is a lack of product. There just isn’t much flat land to develop large industrial projects. However, most importantly, Knoxville sits in the “Golden Triangle.”
K.C. Conway, chief economist for CCIM Institute, coined the phrase. This region, stretching from Illinois to Texas to Georgia, is poised to see some of the best opportunities for industrial development in the next decade.
“The Golden Triangle states may be flyover territory for New York- and California-centric finance and technology industries, but it is the heart of logistics country,” Conway said.
In 2020, Atlanta surpassed Los Angeles for the most large warehouse transactions, according to commercial real estate and investment firm CBRE. Developers now build and lease more new warehouse space in the Golden Triangle than they do in the West Coast and Northeast regions combined.
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The office never died
When COVID-19 hit two years ago, the “death of the office” was a popular phrase.
While there has been significant change, the office’s demise was widely overstated. Avison Young has seen immense activity in the Knoxville office market. Our firm was involved in three offices sales totaling more than 122,000 square feet between Christmas and New Year’s Eve.
Ben Bonner is the managing partner of Magnolia Investment Partners, a firm that owns multiple properties in Knoxville. Bonner sees Knoxville as the next step in growth in the South.
“Knoxville is an emerging city within the Sunbelt that is beginning to get the national recognition that it deserves,” he said. “We are seeing it in office as well as industrial and retail. Across our portfolio of 1.7 million (square feet), we are continuing to see great activity and demand for our properties in Knoxville.”
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Retail led by grocery-anchored centers
The retail market continues to adapt. Restaurants and shops that did not pivot during the pandemic are no longer around. Others pivoted by closing stores. CVS has announced it will close 900 stores at the end of March, including the location at Western Plaza in Knoxville, a store that has been open for more than 40 years.
“It was a slow start to 2021 because there were so many questions,” said Alex Quinn, a developer at Knoxville firm CHM. “Once customers opened their minds that they weren’t going to be cooped anymore, retail exploded. While we are seeing soft-good retails struggle, restaurants and service-related retailers are thriving.”
Grocery-anchored centers continue to lead the way. CHM is in phase one of Biddle Farms in Farragut. The site will include a 22,000-square-foot Aldi that opens this summer. Another 40,000 square feet of small shop space and 286 apartments will follow in summer 2023. This will be Farragut’s first horizontal mixed-use development.
Justin Cazana, CCIM, SIOR is a founding principal of Avison Young commercial real estate. The firm specializes in commercial property management, brokerage, leasing, and landlord and tenant representation. He can be reached at justin.cazana@avisonyoung.com.
