Keller Williams Commercial topped $100 million in volume for the first time in 2021, reports the division, which includes agents from KW Greater Downtown and KW Greater Chattanooga in East Brainerd.
Agents produced $100,318,240 in closed volume in 2021, with KW Greater Downtown accounting for 82% of that production. The previous high for the group was close to $82 million.
The record-breaking tally included a mix of retail, office space, multifamily and industrial properties.
Office space was the leading category for KW Commercial at 38% of closed volume.
Office space dominates
A Sept. 28 National Association of Realtors article titled “Top 10 office markets as of 2021 Q3” forecast a robust year for office space in Chattanooga when it placed the city third on its list after comparing several commercial and economic indicators in markets across the country.
KW Commercial Managing Director Lisa Brown says office space in Chattanooga did well in 2021 against expectations, which she claims were low due to the ongoing COVID-19 pandemic.
“More people are working at home, but we’re also seeing a hybrid of people working at home and the office emerging. People want to be back in their office at least part-time, so we’re not seeing huge office vacancies the way we anticipated.”
The NAR’s indicators included vacancy rates, net absorption (the amount of commercial space placed on the market versus leased), year-over-year change in asking rent, leasing volume in square feet, year-over-year change in professional jobs, net delivered units over a 12-month period, sales transactions in dollars, transaction sales price per square foot and cap rate (the rate of return on an investment property based on the income the property is expected to generate).
The NAR article reports Chattanooga had a low office vacancy rate of 4.3% in 2021. This allowed the average asking rent to climb 2.3% year-over-year.
With a cap rate of 6.7%, properties in Chattanooga were still cheaper compared to Austin or Miami, the NAR article noted.
Brown attributes the low office vacancy rate in Chattanooga to the high level of interest national investors are showing in the city.
“I showed a 50,000-square-foot building on Market Street to a Portland, Oregon, company that’s looking to bring its entire operation here, and with that comes the need for 10,000 square feet of office space and 40,000 square feet of industrial space.
“People are coming to Tennessee. They love the tax advantages we offer, the price point of our houses – which is still well below other markets in the U.S. – and our low cost of living. It helps them to recruit talent.”
Nationally, the office market saw negative net absorption, rising vacancy rates and lower asking rent in 2021 compared to 2020, noted the NAR piece. This was due to ongoing weak demand for office space in the primary markets, with about half of tech workers still working from home nationally.
However, secondary markets such as Chattanooga were experiencing an increase in office occupancy, given the relatively affordable residential and commercial prices in these markets, according to the NAR’s September 2021 Commercial Monthly Insights Report.
To continue to perform well in the office space category, Chattanooga needs to add more square footage, Brown says.
“Chattanooga has added only 1 million square feet of office space since 2010. New office development in the city is rare and usually comes from smaller projects.”
Chattanooga is seeing innovative redevelopment of spaces like Hamilton Place Mall, Brown adds, where 57,000 square feet of Class A office space is available for lease in the former home of Sears.
Brown says the adaptive reuse of the former WestRock facility at 1601 Holtzclaw, which offers approximately 120,000 square feet, is also helping Chattanooga to keep up with demand.
The two buildings at 619 and 621 Market Street could bring another 30,000 square feet of office space to the market, Brown points out.
“These are beautiful historic buildings in the heart of downtown. We’re starting to see renewed energy between the 600 and 800 blocks of Market with the announcement of the former historic Chattanooga Bank Building being adapted to a Tapestry Collection boutique hotel.”
Low inventory plagues market
KW Commercial also fared well in the other primary categories, Brown says, with multifamily placing second at 21.6%, industrial coming in third at 18.7% and retail bringing up the rear at 14.7%.
Brown says she files the remaining 7% her group netted in the “miscellaneous” category.
Commercial agents in Chattanooga were also challenged to locate inventory in these categories, Brown reports.
“We’re constantly networking to find off market properties for our clients who are trying to relocate their businesses to Chattanooga. This is especially true in the industrial segment. CoStar Group shows there were only 140,000 square feet of industrial space under construction at the end of Q3, which won’t make much of an impact.”
Brows calls the lack of industrial warehouse space in Chattanooga “critical.”
“When companies look for warehouses here, there’s rarely anything available. When there is, it’s a fight to get it.”
The lack of inventory can be attributed to a lack of land in Chattanooga as well as the costly price tag of building on local land once it’s acquired, Brown adds.
“We have limited available land and it’s hard to acquire land close to downtown. When we do find land, we’re hilly, so it takes a lot of money to build on our terrain.”
Despite these challenges, Brown says demand will continue to be high locally.
“People want to spend money in Chattanooga – especially people with 1031 money. They’re uneasy about their ongoing ability to use it at the levels they’ve been able to use it, so they’re trying to place money right now, and they like placing it in Chattanooga.
“We just need more places for them to put that money.”
Brown does say she believes Chattanooga can meet the high demand for multifamily, as about 1,100 units are currently under construction.
“Demand has sent lease rates soaring, so I get calls weekly from people looking for multifamily in Chattanooga.”
Brown and her colleagues at KW Commercial are at least enjoying an abundance of manpower.
The director grew her commercial team to 17 in 2021, giving her a roster that includes not only heavy hitters like Robert Fisher, Jennie Brockman and Joe Pleva – who alone delivered $30 million of KW Commercial’s volume in 2021 – but also a number of agents who are learning from their established counterparts.
“When you have that kind of knowledge, it’s important to share it with one another, so we discuss deals and share market stats during our regular meetings. We want to be the most knowledgeable commercial Realtors in Chattanooga, not only in regards to what we do but also to what’s happening around us.”
This team, rather than the conditions of the local market and the challenges it poses, has Brown feeling optimistic that her group can set another record in 2022.
“My goal is for us to do $125 million,” she says. “My team can do it.”