State of Commercial Real Estate in Tennessee
Tennessee’s economy has weathered the turmoil and recovery of the last 10 years well. This is particularly true in the area of commercial real estate – the market that builds and sells the apartments, offices and stores that keep our cities’ economies running. Growth in commercial real estate has been steady, even booming in some places. But like most things in Tennessee, circumstances vary depending on which part of the state you call home.
We asked four of Pinnacle’s commercial real estate experts from every corner of the state for their take on the status and future of commercial development in their cities. Read their insights below, and reach out to your financial advisor if you’d like to connect and learn more.
John Cannon, Commercial Real Estate Manager
The pace of commercial development in Nashville has been challenging to keep up with. There are some 12,000 apartment units either recently completed or still under construction right now. With that many units set to be delivered in a short amount of time, we can’t avoid temporary oversupply in the market. But most of these projects are appropriately capitalized to maneuver through this period of oversupply. Often with 30 or 40 percent equity, these projects have the flexibility to handle some temporary softness as they continue to stabilize. As long as the Nashville economy remains strong, I would expect the softness in the market to be short-lived, with development and investment picking back up again at some point in late 2018 when the majority of the current apartment inventory has absorbed.
Read more of John's perspective on Nashville's CRE market at Tennessean.com.
Tom Vester, Commercial Real Estate Manager
Knoxville is not seeing a great deal of new multifamily development, though the overall market is strong with low vacancies. Downtown has done well, but it’s a small area with projects mostly focused on rehabbing existing buildings. On the retail side, there are growth and investment opportunities in select areas of Knoxville, which is strong in certain pockets. There are even more in south Knoxville, which is growing into a larger suburban alternative to living on the north side of the river. Growth there won’t be explosive, but it should be steady and reliable for some time to come. For urban opportunities, I expect downtown Knoxville to start expanding east and north, bringing more retail and residential development with it. We will continue to evaluate projects as they come. We’re looking for the right location paired with the right product and a good amount of equity.
Frank Stallworth, Commercial Real Estate Manager
Memphis is a bit different than the rest of the state. We have never really been a “boom and bust” market for commercial real estate. Instead, Memphis usually sees slow and steady growth on a reliable basis over several years. I do not expect that to change in the near future. There are some new jobs being created, almost all with companies already in Memphis, and that brings occasional opportunities for office space and retail. For multifamily, there is some movement downtown and in Collierville, but generally our occupancy rates are high and not quite full. For those reasons, we are looking for developers who know Memphis and are comfortable with a longer-term hold market.
Kenny Dyer, Pinnacle’s Chattanooga President
Downtown Chattanooga has a lot going on. Urban renewal brought a great deal of new multifamily projects online over the last few years that have done well, especially among millennials. But it’s reaching a saturation point in the urban core, and I expect it to pause for a little while. Meanwhile, areas outside the urban core still have some opportunities for investment – under the right circumstances. Areas like Ooltewah have done well because of new jobs being created, and there is still some capacity for growth. However, I expect that growth to be mostly in smaller projects of 30-50 units, not the 300 unit complexes that have been built in the past. We will keep looking cautiously at all opportunities, though underwriting will likely be a bit tighter than it was three or four years ago. We will look for developers with a good track record – particularly among existing Pinnacle clients – and keep investing wisely in well-capitalized projects.