BusinessTN

Realtors, brokers, investors and developers in Knoxville are happy people these days. Vacancies are down, absorption is up, and new construction and development is underway, with exciting new projects springing up around their fair city. For those trying to sell the idea of locating a company and working and living in Knoxville, it is not hard to find reasons. Knoxville offers the University of Tennessee, the Oak Ridge Technology Corridor, awe-inspiring natural beauty including the Great Smoky Mountains National Park and the Big South Fork National River and Recreation Area, and cultural attractions including symphonies, ballets, opera and theatre. Knoxville twice has been named America’s most livable city. And according to Roger Moore of the R.M. Moore Real Estate Co., “The Knoxville market hasn’t always been great, like the rest of the country, but generally has experienced fairly steady growth. Now, we’re about to hit some big growth. And we’re ready.”

OFFICE
Regarding the office sector of commercial real estate in Knoxville, Maribel Koella, a broker with NAI Collins, Sharp & Koella, says that the suburbs have dominated the Knoxville office market, while the downtown office market has remained sluggish. “There is still strong demand for space on the perimeter of the metro area with several new office developments under construction,” she says.

One of the most exciting new developments in the office sector is Century Park at Pellissippi, Knoxville’s first comprehensive office complex. In August 2004, the Pellissippi/Dutchtown Partnership of Nick Cazana with Commercial & Investment Properties, along with Sam Furrow, broke ground on the development, which will integrate a design encompassing office buildings, a hotel and conference center, a daycare center and a bank. Future plans include a small amount of retail, such as a dry cleaner, a sundry shop and an apothecary—probably not more than 10,000 square feet, Cazana says. The entire development will encompass approximately one million square feet, built over a five-year period.

The first 50,000-square-foot office building in Century Park was 100% leased before completion. According to Cazana, this is unusual in a market like Knoxville, where speculative buildings typically experience a slower lease-up period. Construction on the second 50,000-square-foot building began in March 2005, and construction on a third building of 100,000 square feet is expected to begin in the summer of 2005.

Cazana concurs with his colleagues that the general condition of the leasing market in Knoxville in the past 18 months has been positive, especially with Class-A space downtown, in the Papermill and Weisgarber areas, as well as Pellissippi. “All of our buildings are at 98%+ occupancy,” he says, “and our Class-B building of 140,000 square feet is 90% occupied.”

Louise Fogarty, a partner with Blue Ridge Realty, and Dan Barnett, a partner with Blue Ridge Development, say they have encountered a similar vigor in leasing and pre-leasing. Blue Ridge’s most recent and largest project is Lakeside Centre, located at Northshore Drive and Pellissippi Parkway, in West Knoxville, the fastest-growing sector in the city. Two phases of this office development have been completed—One Lakeside Centre, with 64,000 square feet, is 100% leased, and Three Lakeside Centre, with 98,000 square feet, is 94% leased with the recent signing of a 45,000-square-foot lease with Scripps Networks (HGTV). “We have one remaining office building site for an additional 98,000-square-foot building projected to be completed in 2006, depending on reaching the pre-leasing goal of a minimum of 40%. In addition, we’ve sold four acres for retail development to Shuler Properties of Atlanta,” Fogarty says.

R.M. Moore Real Estate Co. is pre-leasing up to 45,000 square feet at Lovell Pointe II, a Class-A professional building.

RETAIL
Bob Talbott, president of Holrob Investments, says, “Knoxville is becoming a prime area for retirees, and that factor, along with strong developments in the Tellico area, Pigeon Forge and Gatlinburg, all help the Knoxville market, which is the hub of the region.” In far west Knox County at I-75 and I-40, Turkey Creek is an extremely strong retail area that continues to develop, with approximately one million feet of space and a Super Wal-Mart and Super Target under construction.

Colonial Properties of Birmingham, Ala., along with Turkey Creek developers, are building a specialty retail center, and other centers continue to develop. In the near west, in the Bearden market, activity is busy while the area undergoes a revitalization. AmSouth is moving its local corporate headquarters from downtown to Bearden. Target is opening a store around the East Town Mall on the former site of the Farmer’s Market, and the Emory Corridor also is developing its retail offerings. “The outlook is extremely positive,” Talbott says.

Koella adds that the Turkey Creek development continues to absorb most of the retail space available. Turkey Creek is a 60-acre development at I-75/I-40 and Parkside Drive. “When built out in about two years, it will encompass three million square feet of commercial space that will include 1.5 million square feet of retail space, one million square feet of office and hospital space, and 500,000 square feet of hospitality and entertainment space.”

There has been great success in the redevelopment of old buildings of 5,000 square feet to 30,000 square feet. “Buildings built in the 1960s that have great locations but are rundown now, like the Westwood Building, Colony Park and The Shoppes at Fountain Village, are prime redevelopment projects,” Moore says. One of R.M. Moore Real Estate Co.’s current projects is The Shoppes at Fountain Village, an approximately 60,000-square-foot center built in the 1960s. The center is receiving a new face and a wing addition.

Blue Ridge Realty says the anchor tenant for its new Three Lakeside Centre is Talbots. The ladies’ clothing store relocated its catalog sales center there.

INDUSTRIAL
According to Koella, the industrial sector of the commercial real estate market in Knoxville has been active with most of the good product absorbed and vacancies at less than 10%. “Developers have been slow to build more, due to the state of the economy, so there is little product right now,” she says.

Some of the major properties NAI Collins, Sharp & Koella has been involved in include the sale of the 186,000-square-foot Athens Products Building to an auto parts manufacturer; the sale of the 164,000-square-foot Allied Digital Building to a soft goods distributor; the lease of the 130,000-square-foot Damy Building to an added value service company; and the lease of a 64,000-square-foot building to Remotec, a subsidiary of Northrup Grumman, a manufacturer of robots.

Blue Ridge Realty has seen an increased demand for office and warehouse flex space. The company is responding by developing a new 34,000-square-foot office and warehouse facility in Corridor Park to be completed by the end of 2005.

MULTI-FAMILY
According to John Robin with R.M. Moore Real Estate, the multi-family market does not experience extreme highs or extreme lows as far as vacancies are concerned, but growth in the past has been slow. Several larger apartment complexes have been adding additional units, indicating steady growth, and the units typically are absorbed in the market quickly. East Tennessee is attracting the attention of larger investors, such as REITs (real estate investment trusts), that are interested in only the larger complexes of 250 units or more. Robin says that this creates a “high class” problem because there are not that many larger complexes for sale in the Knoxville area. “As a commercial broker, I talk to these types of investors on a weekly basis about the possible acquisition of these types of properties. A rare sale of a 400+ unit complex occurred in March of this year, with the complex selling for over $14 million,” Robin says. Real estate, particularly in the multi-family sector, is a hot commodity at this time, and Robin says that while he has a long list of potential buyers, there are not a lot of sellers.

Bob Mohney, owner and president of Saddlebrook Homes, has built several condominium projects in the area, and has two more on the table, one a 58-unit townhouse development that will break ground in 60 days in west Knoxville, and a 90-unit development on the east side of Knoxville that will begin in August 2005.

Currently, Mohney is developing an apartment complex with 220 units. Ground-breaking will take place in about six months. Saddlebrook expanded its business to include multi-family housing, along with its existing single-family home developments because “it makes sense to diversify,” Mohney says. “Business in single-family home construction is awfully good, but apartments are another area of construction and an outside investment.”

New construction in multi-family is coming to Knoxville in a mixed-use town center development, the first of its kind in Tennessee, according to Shane Doran, senior vice president of The James Doran Co. of Charleston, S.C., which has developed several mixed-use centers throughout the Southeast. “We are combining our experience with various real estate products and developing mixed-use projects like the Northshore Town Center, located in the west end of Knoxville—a fast growing section of town,” Doran says. “The Northshore Town Center is what we call ‘New Urbanism’—retail, office and residential, all in one development. A Town Center allows you to live, work and play—all in one place.”

Why did The James Doran Co. come to Knoxville? “It was a combination of the surrounding area, the opportunity to develop the site, and timing—we were able to acquire the land and secure the rights to move forward,” Doran says. “There are not that many well-located 140-acre sites. We were fortunate to come across this one.

Separately, Northshore Town Center is currently in the grading phase and already has a contract with Mike Stevens Homes for 270 town home and single-family lots as part of the development. Northshore also will have 500,000 square feet of retail space, 300,000 square feet of office space, and 700 residential units in all, a mixture of multi-family and single-family homes.

“Knoxville is experiencing good, steady growth—and it’s an awfully good place to live and do business,” Cazana says. “For those of us who travel a lot in other southeastern cities such as Atlanta and Charlotte, traffic problems are the norm. Knoxville doesn’t have traffic problems; it has inconveniences. Nanotechnology and government spending in Oak Ridge, along with the progressive and nearby communities of Maryville and Alcoa, all help anchor the north end of the Pellissippi Parkway.”

During a recession, the biggest burdens in a market like Knoxville are B-Class and C-Class properties. “These properties hardly move in a slow economy, but now, activity in that area is good and the buildings seem to be leasing up,” Roger Moore says. If there is any frustration at all, it is that there has not been that much new Class-A retail or office space until recently. With the improved economy and low interest rates, business activity has become more active, pushing occupancy rates to the high 90s and sparking a variety of developments. Optimism abounds in Knoxville’s commercial real estate market with all expecting the next six to 12 months to be an unusually productive time.