Commercial real estate transactions tread water

Published 11:37 am Tuesday, April 18, 2023

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Commercial Real Estate transactions were treading water on the two local commercial databases in March.
Last month’s total lagged March last year by 32 percent. First quarter sales and leases were down 18 percent from last year.
The only positive number from the Northeast Tennessee Association of Realtors (NETAR) March report was a comparison of the three-month moving transaction trend to last year. It was up 35 percent.
NETAR Commercial Chair Jerry Petzoldt called the report, “more of a discouraging short-term sales and lease tally than something indicative of the commercial market.” Local transactions from the larger national commercial real estate databases are not part of the local report.
Stability is a key factor in commercial real estate and the current economic and political climate is anything but stable. Many commercial loans are coming due and there’s uncertainty about rates, there’s continued concerns about inflation and the odds of a recession have increased. None of that means all investors have retreated to the sidelines, they’re just keeping their powder dry while exploring opportunities.
Transactions were down in all but the multi-family category last month. Multi-family has been a leading sector since last year and remains resilient as residential housing trends have shifted to renters. A recent Wall Street Journal study of Census data found right earners – households making over $150,000 a year – were more likely to rent than in the past. Their ranks increased by 87 percent between 2016 and 2021.
Locally, there has been equal interest and activity in both the mid-income and luxury rental communities. Vacancy rates in both the apartment and single-family sectors have been in the 3 percent range since mid-last year. A National Association of Realtors (NAR) report rated both local metro areas as the second tightest residential markets in East Tennessee. Knoxville had the lowest vacancy rate. Recently those vacancy rates have increased to the 4 percent range due to new apartment communities, built-to-rent townhome projects and single-family rental competition.
Leases and sales in the retail and office sectors transactions added to the transaction totals last month. Petzoldt said his firm was seeing an increase in clients buying office space rather than leasing.
According to a NAR commercial market report, office vacancies in the Kingsport-Bristol area are a little north of 5 percent, which is comparable with the vacancy rate in Knoxville. The Johnson City metro was not included in that report.
The sector that has seen little or no transaction activity so far this year is industrial. Much of that can be attributed to lack of inventory.

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