CIP Blog

Knoxville, Tennessee

We take a reprieve from looking at the details of a lease to look at the market update for Knoxville. 

Since our last market update (a month ago), I am happy to say that things have certainly improved in the prospect area.   The phone is ringing more often, retailers are starting to talk about expansion and corporate users are looking for office space.

Retail Growth

Retail:   We manage/broker four different retail properties in Knoxville and the activity at all the centers has picked up.  CIP has done about 11,000sft of retail leasing in the last six weeks (our first retail leases of the year).   Other retailers are moving into the area.  West Town is getting the tea boutique Teavana and a Tommy Hilfiger.  There is a new Brazilian restaurant moving into the former Amerigo’s and the former Boater’s World location across from the mall will soon be home to Nicola’s Fine Furniture and Aspen Dental.   And lets not forget that Sullivan’s will open another west Knoxville location in the old Italian Market at Franklin Square.

Office space is starting to move again

On the office side activity has increased although not many deals have been closed.  Most of the leases are for tenants relocating, not necessarily expanding.  From the deals CIP is working on you can notice that most of the tenants looking to move are corporate groups.  Most locally owned companies are staying put. 

The big office news is still technically a rumor.    Shopper-News reported earlier this month that Powell-based medical products manufacturer DeRoyal Industries is negotiating to buy the JCPenney Building, on Gay Street, as a possible new corporate HQ. 

The story gave few details and company president Bill Pittman this morning said that “We have no plans to move downtown.”

Knoxville Industrial vacancy has risen 3% in the last two years.

The negative news is on the industrial side.  According to an MPC report, the vacancy rate grew from 11.1 percent in the fourth quarter of 2007 to 14.1 percent in the fourth quarter of 2009.  That is a pretty significant jump.

Four notable industrial properties were vacated since 2007 adding a combined 1,137,825 square feet to the market and making up 33 percent of the area’s vacant space.  That does not include an additional 102,000sft that has gone vacant since this report was completed. Vacancies also continued to grow at the national level, with the national vacancy rate registering 13.2 percent availability in the fourth quarter of 2009. 

Reading real estate is like reading tea leaves…tough to do and can leave a bitter taste in your mouth.  Things do look better as a whole but the market is still volatile. 

As always, if you have any questions please feel free to contact me at 865-584-3967 or jcazana@ciprop.com

Justin Cazana, CCIM

Knoxville is a bit different when it comes to the industrial/warehouse/distribution market.  Because of the market’s proximity to so many major interstates, I-40, I-75, I-81 and being so close to major cities like Charlotte, Atlanta, Nashville and Cincinnati, you would expect more of a distribution presence.  But that is not the case.  While there is about 32 million square feet of what would be considered industrial space much of it is dated and not the new high-bay space required by top-flight tenants.

DCP Warehouse-Amherst Road

What do you need to look for?  It varies just like retail and office, but functionality often replaces locations on the priority list (as long as the location is not to bad).

Space Attributes

A wide range of storage alternatives, material handling equipment and software exist to meet the operational requirements of a warehouse space type.  Intergration of these features is essential. Warehouse spaces must also be flexible enough to adapt to future operations and storage needs.

Functional / Operational

• Use of Space: Warehouse space types are often designed with higher bays to take advantage of vertical storage. Utilization of space is maximized while providing adequate circulation paths for personnel and material handling equipment such as forklift trucks.
• Design for Live Loads: Designs should anticipate the loads of stored materials and associated handling equipment, typically 250 LB/SF. Snow, wind, and seismic loads shall be considered where they are applicable. Racking in seismic areas must be built stronger and be better braced.
• Power and Utility Requirements: Differentiate between spaces that require power and utilities, and those that are for storage only. Depending on the goods being stored and handling equipment required, there may be a need for well-distributed power and utility lines throughout the space. Attempt energy-efficient lighting when possible. Warehouse spaces typically include one floor drain for every two bays of storage, as well as sand and oil traps on waste lines.
• Loading Dock: Warehouse space types are typically designed with one electro-hydraulic dock leveler per every five truck bays.
• Fire Protection:  New buildings sometime are built with an ESFR sprinkler system that allows each sprinklerhead to put out almost 100 gallons of water per minute!
• Special HVAC: Provide proper ventilation under all circumstances. Plan for 100% exhaust from storage areas with paint, petroleum, aerosol, or other minor amounts posing moderate hazard storage conditions.

Determine the type of space you’ll need. Have a good grasp on requirements for phone, broadband data service, HVAC, gas, water and electricity. You’ll want enough power to provide adequate lighting and operate necessary equipment. Take all your needs into consideration when looking at space: storage for raw materials and finished product, a production area or assembly line, ceiling height, column spacing, dock-high or drive-in truck access, signage, offices and rest rooms. Think about proximity to freeways for access, as well as public transportation, parking requirements and, possibly, rail access.

Try to develop a preliminary layout that takes into account all aspects of your operations. The layout should include utility connections for each piece of equipment. With this information, you can determine what type and how much space you’ll need.

As far as Knoxville is concerned there are dozens of small/medium warehouses (less than 40,000sft)  available but fewer of the larger size (+40,000sft ).  In fact only 14 can be found on the MLS (and only one exceeds 100,000sft).  Doesn’t seem like much does it.

For comparison, Columbia, South Carolina (with a metro area only 50,000 more that Knoxville) has three million more square feet of industrial space. Birmingham, Alabama has 123 million square feet of industrial space.

There is space out there.  It just depends on what you are looking for.

Resources:  Whole Building Design Guide (WBDG.org), Grubb & Ellis, Graham & Co.