Chattanooga is the No. 3 commercial office market in the U.S. as of the third quarter of 2021, according to the National Association of Realtors’ monthly Commercial Market Insights report, released Monday.
This places the city ahead of Daytona Beach, Florida, Miami, Myrtle Beach, South Carolina, Omaha, Nebraska, Palm Beach, Florida, Provo, Utah, and San Antonio, but behind No. 1 Austin, Texas and runner-up Boise, Idaho.
NAR analyzed 390 commercial real estate markets and found a robust recovery, with positive net absorption and escalating rents across the multifamily, industrial and retail property markets as economic production rebounds to pre-pandemic levels.
The apartment and industrial sectors are reporting historically low vacancy rates, while retail has undergone a more gradual recovery as consumers continue their return to brick-and-mortar shopping, NAR reports.
The office sector, however, continues to struggle nationally, as absorption rates and rents have declined and many occupied spaces remain largely void of workers.
Positive indicators have been noted in small- and medium-sized metropolitan areas, which are seeing increases in office occupancy rates that outperform most large cities and the national average.
This includes Chattanooga, which Keller Williams Commercial Realtor Robert Fischer notes leased 327,000 square feet in the third quarter of 2021.
“In most major cities, more office space is being built than leased,” Fischer explains. “New York City has a negative absorption of 22 million square feet, while Chattanooga has a positive absorption of 327,000 square feet.”
Fischer says the newfound focus on working from home will leave the larger companies in Chattanooga with an excess of empty offices and cubicles.
“A lot of people won’t be returning to the office, which will be stressful for many corporations,” he submits. “BlueCross BlueShield spent hundreds of millions of dollars building a tremendous campus downtown, but now many of those people will probably work from home.”
Despite the challenge utilizing a remote staff presents to large companies in Chattanooga, the city’s office market should remain stable, Fisher says, partially due to a lack of construction.
“No one is building office space in Chattanooga. If you go to Nashville, you’ll see a dozen cranes building offices. I doubt we have a single crane building an office.
“So, our leasing numbers are good but partly because we’re not building.”
Fischer says he doesn’t see office construction increasing in Chattanooga due to competition from the region’s larger cities.
“The companies that are leaving California, Chicago, New York City and elsewhere are moving to Atlanta, Nashville and Huntsville, not Chattanooga. And I don’t see anyone trying to change that because the competition is too fierce.
“Our prices are lower, but if you have a company that employs 1,000 people, then you need airports that fly more places than Chattanooga’s does and you need a bigger metro area than we have.”
Chattanooga is, however, seeing an increase in the number of small- and medium-sized businesses, which is another factor Fischer believes will keep the local office market buoyant.
“There’s enough money out there that people are able to start small companies and lease small spaces,” he says. “A lot of companies have gone out of business since the start of the pandemic, but there’s also a lot of business creation taking place.”
NAR’s complete September 2021 Commercial Market Insights Report