Justin Cazana, Principal Broker with Avison Young Commercial Management
Justin listed the many segments of commercial real estate, then covered some basics. He said the market is not as bad as it looks. Avison does about $200,000,000 a year in business locally. They manage shopping centers, office buildings, etc. In Knoxville in the last 12 months: office space is at 92% occupancy; industrial 98% occupancy; retail (especially if a grocery anchored center) is strong. Hospitality is strong as well.
Other cities are not faring as well. Many big cities are seeing record vacancies in commercial real estate. One bad example; Michigan’s governor canceled 200,000 of state office space in one day.
Downtown Knoxville’s last office building built was 1992. There have been apartments, hotels, but not office buildings. We need new office buildings downtown. Why is Knoxville different doing better than many cities? It is a great place to live. Especially if you are at an age for “settling down”.
There are 4 hotels being built downtown. One company paid $7.5 million for 3/4 acre downtown to build a hotel. Brand new or new-is office space is considered Class A. Companies realize they have to occupy that kind of space. They are making investments that attract employees who will stay, resulting in a strong flight to quality office space.
A large percentage old Scripps headquarters has been purchased by Altar’d State, a retail provider of women’s clothing. This building is a very high quality building. We are the only market in America that has seen a building like this sell in a year; twice.
The baseball stadium is going to make an enormous difference as well in the downtown area.
Residential: Condos. Justin noted there are shocking numbers in our market. For example, We have only 1200 houses on the market, which is about 1/3 the usual amount. People are not selling because of interest rates. Land costs have escalated greatly as well. In 10 years, those prices have tripled.
Our workforce is changing. There are only 1.75M of the greatest generation still with us, 23.6m of the silent generation (1923-1946), 84m boomers. 65m gen-xers, milleniails are 82.2m and there are 86.4 gen-Zers. (Some charts are calling Gen Z the New Boomers.) These numbers will result in some interesting dynamics in our economy. The Boomers are expected to leave to their children and grandchildren the greatest transfer of wealth in the history of the world.
As for commercial real estate, $2.4 trillion of that debt will mature within the next five years. As bank rates have gone up considerably since those properties were financed, this number will have an enormous impact on the economy. Banks hold 40% of all CRE debt, with small banks holding 12% of that total.
Justin gave a brief update of some projects his company handles in the community and had a short period of time for questions.