PROPERTY MARKET STUDIES

The Executive Summaries from the most recent MPC Market Analyses of industrial, office and shopping center space are available below. To purchase the complete reports, contact Bryan Berry at (865) 215-2500 or bryan.berry@knoxmpc.org

 

2010 Office Market Analysis

The U.S. economy remained stagnant throughout the first three quarters of 2010 with little real job growth (around 463,000¹ total nonfarm employment) and an unemployment rate hovering between 9.5 and 10 percent. Despite drab economic conditions, the national office market showed a glimmer of improvement as vacancy rates dropped 30 basis points from second quarter 2010 to 17.5 percent availability in the third quarter. This was the first time since the second quarter of 2007 a decline in vacant space occurred. New construction totaled 25.5 million square feet during the first three quarters of this year, while space absorption edged into the positive with 4.7 million square feet.

Knoxville’s economy showed small signs of improvement as job growth rose slightly (around 4,400² total nonfarm employment) and unemployment fell from 8.6 percent to 7.1 percent throughout the first three quarters of 2010. While local economic indicators improved, the office market failed to respond. Areawide rentable supply increased only 0.7 percent since third quarter 2009, 2.5 percent below the ten-year annual average of 3.2 percent. A small surplus of new supply, coupled with a growing amount of existing available space resulted in the negative absorption of 455,505 square feet from third quarter 2009 to third quarter 2010. The areawide vacancy rate increased 280 basis points since 2009, notching 16.2 percent this year. Both downtown and suburban markets experienced increased availability, reaching 13.6 percent and 17.4 percent in 2010, respectively.

Knoxville’s rentable space is divided into three categories: general office use accounted for the largest amount with a 69 percent share and a vacancy rate of 17.3 percent. Medical followed with more than 3.2 million square feet of rentable space and 17.7 percent available, while government comprised the remaining supply.

¹The Bureau of Labor and Statistics lists nonfarm employment payroll to have risen by 874,000 since December 2009, despite 411,000 being temporary employees hired in May 2010 to work on Census 2010.

² Tennessee Department of Labor and Workforce Development estimated nonfarm employment payroll for the Knoxville MSA from January 2010 through September 2010.

2009 Hotel Market Analysis

The nation’s lodging industry declined during the past two years as indicated by several market measures. Average occupancy rates fell from 63.2 percent in 2007 to 55.1 percent in 2009, while average guestroom rates dropped 5.9 percent since 2007 to $97.51 this year. Across the country the annual revenue per available room (RevPAR) was $53.72 in 2009, down 18 percent in the last two years.

Knox County’s hotel market experienced a tumultuous two years as well, with occupancy rates falling from 60.4 percent in 2007 to 50.1 percent this year across the area’s 8,737 guestrooms in 95 properties. Despite increased availability, the average guestroom rate only fell two percent since 2007 to $70.11 in 2009. The RevPAR this year was $35.13, a decline of 18.5 percent since 2007’s level of $43.12.

Not all news was bad though as construction added five new properties to the local market, accounting for 424 new guestrooms. Forty-two percent of areawide guestrooms could be found for under $80 per night, while 18 percent collected over $120 per night.

2009 Industrial Space Inventory

Market fundamentals remained weak in the U.S. as the economy continued to struggle. In December of 2009, national unemployment notched double digits (10 percent) for a third consecutive month. Unemployment remained high and the economy showed few signs of adding to payrolls in 2010. Manufacturing unemployment continued to rise from an annual rate of 4.3 percent in 2007 to 12.1 percent in 2009. Erosion of the manufacturing employment base reflected declines in the industrial economy as vacancy rates climbed from 12.1 percent in fourth quarter 2008 to 13.2 percent in fourth quarter 2009.

Knoxville’s industrial market had mixed reviews. With over 32.8 million square feet of space this year, total supply was up 2.1 percent since 2007. Areawide, the market gained eight new industrial buildings since 2007. However as the local inventory grew, so did availability. In the fourth quarter of 2007 the vacancy rate was 11.1 percent. The rate grew 300 basis points to 14.1 percent in the fourth quarter of 2009.

2008 Shopping Center Market Analysis

In the last two years, the nation’s economic landscape has eroded. Labor markets shed millions of jobs, credit conditions grew unstable, and consumer confidence plummeted to record lows. As a result, discretionary spending softened as consumers limited purchases to necessities.

In the face of national recession, retail property markets contracted, and vacancy rates increased from 7.5 percent in 2007 to 9.3 percent in 2008. New retail supply dropped from 75 million square feet last year to slightly over 40 million in 2008. With unstable economic conditions, declining construction levels, and rising vacancy rates, analysts do not expect signs of retail market recovery before late 2009 or 2010.

Knox County’s shopping center market was not immune to the economic troubles felt nationwide, but not all news was bad. Since 2006, the local market added 744,406 square feet of gross leasable area (GLA), increasing 4.8 percent. Although new supply grew, areawide vacancies climbed from 6.5 percent in 2006 to 9.2 percent in 2008. Performance among Knoxville’s sub-markets was mixed also. GLA additions ranged from 13 percent in Farragut/Pellissippi to no new retail space in the East sub-market. Vacancies also saw wide variations, from a high of 12.3 percent in the Chapman/Alcoa area to 1.9 percent in the East.

 

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This is not a legal document. It does not replace or amend the existing procedures and regulations governing the publication of agency information. If you have questions, please contact MPC by telephone at (865) 215-2500.

Page Last Updated:
June 30, 2011