Sunday, November 14 marked a pivotal day for commercial real estate in Knoxville. The Knoxville News Sentinel business section showcased a list of recent property transactions, with the top 12 sales totaling an impressive $125 million. Among these transactions were four apartment complexes, seven self-storage facilities, and a downtown office building.
But this was not an isolated event. In the 10 months leading up to that day, experts in Knoxville's commercial real estate industry had been witnessing a significant increase in transactions. This included the establishment of two new Amazon distribution centers, the relocation of office tenants into recently vacated Class-A buildings, and a remarkable surge in industrial activity that rivaled the bustling residential market.
The momentum continued, with Avison Young completing deals worth a staggering $42 million in November and December alone. It left many wondering, why the sudden surge of success in Knoxville's commercial real estate market?
The Industrial Sector Continues to Soar
One of the driving factors behind Knoxville's commercial real estate success lies in the industrial sector, encompassing warehousing, manufacturing, and distribution. Two primary reasons account for this growth. Firstly, there is a scarcity of available land suitable for developing large industrial projects. Secondly, Knoxville is strategically positioned in what is known as the "Golden Triangle."
K.C. Conway, Chief Economist for CCIM Institute, coined the term "Golden Triangle." This region, stretching from Illinois to Texas to Georgia, offers some of the most promising opportunities for industrial development in the coming decade.
According to Conway, although the Golden Triangle states may be viewed as flyover territory for finance and technology industries centered in New York and California, it is the heart of logistics country. In fact, Atlanta surpassed Los Angeles in 2020 for having the most significant number of large warehouse transactions, as reported by commercial real estate and investment firm CBRE. Developers now construct and lease more new warehouse space in the Golden Triangle than in the combined West Coast and Northeast regions.
The Office Market's Resilience
When the COVID-19 pandemic hit two years ago, the "death of the office" became a common phrase. However, claims of the office's demise were greatly exaggerated. Avison Young has been witnessing remarkable activity in the office market in Knoxville. Between Christmas and New Year's Eve alone, our firm played a role in three office sales, totaling over 122,000 square feet.
Ben Bonner, Managing Partner of Magnolia Investment Partners, a firm owning multiple properties in Knoxville, sees the city as the next growth hub in the South. He believes that Knoxville is gaining well-deserved national recognition across various sectors, including office, industrial, and retail. Bonner states, "Across our 1.7 million square feet portfolio, we continue to experience robust activity and demand for our properties in Knoxville."
Retail Reinvented with Grocery-Anchored Centers
The retail market has undergone significant transformations and adaptations. Businesses that remained inflexible during the pandemic have vanished, while others have pivoted by closing physical stores. For instance, CVS recently announced the closure of 900 stores, including the location at Western Plaza in Knoxville, which had served the community for over four decades.
Amid these changes, grocery-anchored centers have emerged as the leaders. CHM, a Knoxville firm, is currently developing Biddle Farms in Farragut. This project's first phase includes a 22,000-square-foot Aldi, set to open during the summer. Following this, the site will introduce another 40,000 square feet of small shops and 286 apartments by summer 2023. It will be Farragut's groundbreaking horizontal mixed-use development.
As Knoxville's commercial real estate market continues to thrive, it is clear that the city's unique geographical advantages, the resilience of the office market, and the adaptability of the retail sector have contributed to its success. With these factors in play, investors and businesses alike are recognizing Knoxville as a prime location for their ventures.
Note: 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. For inquiries, reach out to Justin Cazana at justin.cazana@avisonyoung.com.