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VOL. 8 | NO. 14 | Saturday, March 28, 2015

Commercial Real Estate Bounces Back

‘Very positive’ trend replaces gloom of Great Recession


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After slowing to a crawl in the years following the Great Recession, commercial real estate activity in Metropolitan Knoxville is showing signs of sustained growth.

Last year marked a solid increase in sales and leasing in the Knoxville region, and 2015 is off to a good start, according to several area real estate executives.

“When the recession hit, lot of companies contracted, and that left a lot of space on the market that is now getting filled,” says Justin Cazana, a founding principal and broker with Cushman & Wakefield | Cornerstone commercial real estate in Knoxville.

TeamHealth, one of the largest physician-staffing companies in the country, announced in January it would invest $16.8 million in a new 40,000-square-foot office building in Base Point Business Park, near McGhee Tyson Airport. This Blount County site will be home to the company’s Healthcare Financial Services anesthesia operation.

(The Ledger/Chase Malone)

“We’ve seen (the market) coming back for the last year, year and a-half.”

A total of 1,317 commercial building permits were issued in the Knoxville region in 2014, an increase of 33.1 percent from the previous year, according to The Market Edge, a Knoxville-based real estate research firm.

Total permit value for 2014 was $615.2 million, a 27.8 percent jump from 2013, the research firm reports.

Although permit numbers aren’t a definitive indicator of trends due to the differences in how various jurisdictions issue building permits, it’s clear that “overall commercial trends are very positive,” says Dale Akins, president of The Market Edge.

“That’s a pretty substantial increase in permit value.”

Commercial activity is off to a strong start this year despite the unusually harsh winter weather, Knoxville area brokers report.

“It’s been very, very active, and we’re still getting phone calls and activity going on even with the snow keeping us home,” explains Matt Fentress, broker with NAI Knoxville.

Cornerstone, which has seen a 10 percent jump in business so far this year, is currently working on a deal that would bring a new business to Knoxville that needs 80,000 square-feet of commercial space, Cazana adds.

The firm also has leased a pair of 25,000 square-foot office properties in the last six months alone and is close to finalizing two other 25,000 square-foot deals, according to Cazana.

Other Knoxville commercial real estate firms have similar stories to tell.

“We’ve had the best quarter that we’ve had in five or six years,” notes Roger Moore, managing director/president of Sperry Van Ness | R.M. Moore. “Based on what we have pending, it feels like we’re finally getting turned around.”

Commercial real estate services companies Wood Properties Inc. has brokered a number of high profile commercial deals in recent months from the Pellissippi Parkway corridor in West Knox County to downtown Knoxville’s central business district.

“2014 was a much better year for everybody,” says Brad Blackwell, Wood Properties senior vice president.

“From leasing to investment sales of office buildings to shopping centers, we’ve seen more activity.”

One of its more notable deals was the sale last fall of the historic Farragut Hotel building in downtown Knoxville for $3,675,000 to Dover Development (formerly known as Family Pride Corporation).

Dover, which specializes in restoration projects, hasn’t finalized a plan for the 135,000 square-foot building, but a hotel or condominiums are considered likely.

In the last year or so, Knoxville attracted considerable investment from Real Estate Investment Trusts and other investors, Cazana says.

“REITs looking for places to put their money have been investing in Charlotte or Nashville, but there’s no margin left in those markets, everything is being bought at a premium.

Medical sciences company ProNova began construction last year on a $52 million corporate headquarters and research campus at Pellissippi Place, a business park in Blount County.

(The Ledger/Chase Malone)

“So, secondary markets like Knoxville are attracting investment,” Cazana explains.

Knoxville’s office, retail and industrial sectors are all improving, although office space has been slowest to recover.

Metro Knoxville’s industrial vacancy rate has fallen below 7 percent and retail vacancy is about the same, while the office vacancy rate fell to 8.3 percent in the 2014 fourth quarter, according to Fentress, who specializes in office and investment properties.

As recently as 2012, Knoxville area’s office market vacancy rate was as high as 16.9 percent, according to the Knoxville-Knox County Metropolitan Planning Commission.

Fentress attributes the boost in demand for office space to rising consumer confidence, relatively lower gas prices and other signs of an improving economy.

In a recent blog post, Fentress wrote: “Approximately 70 percent of the businesses in Knoxville are 2,500 square feet and under.

“That’s where the real fear was in the small businesses. And so what we saw during the fourth quarter of 2014 and continue to see now is confidence about their business, confidence now to go ahead and make longer term decisions.”

While sales and leasing activity has bounced back from recession lows, new construction, particularly in the office sector, has been more modest in the Knoxville region.

Even so, there are promising signs for new office space construction.

Rapidly growing Knoxville-based healthcare companies such as TeamHealth and ProNova Solutions, are investing in new office space, says Moore.

TeamHealth, one of the largest physician staffing companies in the country, announced in January that it would invest $16.8 million in a new 40,000 square-foot office building in Blount County. The new facility at Base Pointe Business Park near McGhee Tyson Airport will be home to the company’s Healthcare Financial Services anesthesia operation.

The office building should be completed by August 2015 and is designed for possible expansion to 70,000 square-feet.

Medical sciences company ProNova last year started construction on a new $52 million corporate headquarters and research campus at Pellissippi Place, a business park in Blount County.

The company, which is developing a compact proton therapy system for cancer treatment, eventually expects to have about 200,000 square-feet of office and research space and 500 employees at Pellissippi Place.

The automotive industry has also been good for the regional commercial real estate market.

SL Tennessee announced last September that it is investing $80.5 million to build a 50,000 square-foot plant in Clinton to make head- and tail-lights.

German automaker Volkswagen, which invested a billion dollars in a new auto plant in Chattanooga, spent $40 million to build a 450,000 square-foot regional distribution center in Roane County that opened in June 2013.

Moore is talking to another German company that is considering Knoxville for a distribution center.

“We could always use a few more new businesses,” Moore says.

PROPERTY SALES 62 288 2,619
MORTGAGES 52 197 1,783