East Tennessee Retail Market Report

East Tennessee Market Overview

East Tennessee continues to be an area that is thriving with development and transaction volume for the retail sector. Knoxville, the state’s third-largest city, is celebrated for its University of Tennessee flagship campus, flourishing arts scene, and proximity to the Great Smoky Mountains National Park. East Tennessee is a haven for outdoor enthusiasts and is steeped in rich cultural heritage and enduring traditions. Over the past 12 months, there have been 529 transactions totaling over $433 million across the region. The average cap rate during this period is 6.40%, while the average sales price is $1.1 million. This report will look at more statistics, as well as the outlook from several of the most active investors and developers throughout Knoxville and other parts of East Tennessee.

Highlights

• In the past 12 months, there have been 214 sales in the Knoxville retail market, totaling $198 million in sales volume.
• The 12-month sales volume for the Johnson City retail market is $28.7 million.
• The 12-month sales volume for the Anderson County retail submarket is $16.3 million, surpassing the historical average of $13.8 million.

East Tennessee By the Numbers | Last 12 Months | Source: CoStar Group

• Cap Rate: 6.40%
• Sales Price/SF: $138/SF
• Avg. Sales Price: $1,100,000
• Sales Volume: $433 Million
• Sale vs Asking Price: -9.6%
• Avg. SF: 9.1K SF
• Months to Sale: 6.1 Months
• Lowest Cap Rate in Sale: 4.0%
• Highest Cap Rate in Sale: 10.0%

Growth and Development in East Tennessee

Concord/Farragut: As the population in West Knoxville continues to grow, retail development will continue to grow with it. The 37934 zip code has approximately 25,000 residents. Active Knox County investor and developer Tim Hill, with Hatcher Hill Properties LLC, is very bullish on West Knoxville. He foresees growth and development continuing further west and down into Lenoir City. There are largescale mixed-use developments in the works for this area, with hundreds of new Class A multifamily units. With the continued development of housing further west, we can expect that retail will follow.

South Knoxville/Chapman Hwy: Chapman Hwy has always been one of the last parts of the city to see the benefits of all the growth and development. However, over the past couple of years, we have seen many new developments in this region, and that is expected to continue. Starbucks, Tire Discounters, Wendy’s, Valvoline, and Dutch Brothers Coffee are a few of the new tenants to call Chapman Hwy home. Similar to West Knoxville, this area has seen population growth, which has contributed to further retail development. We expect Chapman Hwy to continue to build out.

Powell/East Emory Rd: One of the fastest growing areas of Knoxville. Exit 112 is being repositioned to fit the demand of traffic flow in this area. The new exit will filter traffic behind the Casey’s and Shell, and will feed into East Emory Rd between the Commercial Bank and Ingles Market. This will push the flow of traffic further East on this Road. PureMagic CarWash and Planet Fitness are two of the most recent additions to this area, and we can expect to see Take 5 Instant Oil Change and multiple other Quick Service Restaurants following this movement to East Emory Road.

Oak Ridge: Oak Ridge will continue to see retail construction throughout 2024. South Illinois Avenue is a hub for retail growth. Over the past few years, we have seen a number of new strip centers and restaurant developments, as well as 350 Class A multifamily units. More of the same will follow in 2024 as we see the corner of Illinois Avenue and Tulane Ave build-out. Big things are ahead for Oak Ridge.

Alcoa/Maryville: Alcoa and Maryville have had as much retail development over the past few years as any other part of the region. The corner of Middle Settlements Road and Hunters Crossing has seen tremendous growth with hundreds of Multifamily units, as well as many national tenants such as Chipotle, Starbucks, Take 5 Oil Change, Sleep Number, and many more to come. Broadway in Maryville is an area to keep an eye on because there are still many undeveloped areas.

Morristown: One of the fastest-growing retail markets in East Tennessee. Merchants Greene continues to build out. With a variety of options in the future, Merchants Greene has unlimited potential to revitalize Morristown. Be on the lookout for more strip centers, big box grocery stores, sporting attractions, and hotels.

Johnson City: As East Tennessee State University continues to grow, so does Johnson City. North Roan Street is the most dense area of Johnson City, which means most of the new development will continue further out of the city. We expect the Boones Creek area in the northern part of the city to be the next region for new retail developments.

Kingsport: The city of Kingsport has prioritized several projects for 2023 and has made significant progress. The Fort Henry Mall, Main Street Rebuild, and Brickyard Village have seen progress throughout the year. The city has also allocated $3.8 million toward resurfacing streets in different areas of the city as well. As the Brickyard Village is finished, Kingsport will have to serve this residential surge with further retail development as well.

Population Growth: (Year-Over-Year)

• Knox County: 494,574 – 1.59% growth
• Sevier County: 100,927 – 0.85% growth
• Hamblen County: 65,087 – 0.3% growth
• Anderson County: 78,913 – 2.3% growth
• Johnson City: 72,703 – 0.99% growth
• Kingsport: 158,565 – 0.08% growth

Knoxville

Market Overview

The Knoxville retail market is considered one of the state’s largest metros. Employment in the Knoxville market has increased by 2.8% in the past year. Population growth, however, is nearly flat, having moved just 0.1% over the same period. Annual sales volume has averaged $272 million over the past five years, with the 12-month high reaching $473 million. Deals involving general retail accounted for $170 million of the metro’s total in the past 12 months. Over the past three years, rents have cumulatively increased by 15.2%.

General Retail is the largest subtype in the Knoxville retail market, comprising 34.9 million square feet of space.

Market Performance

Rents are currently $17.97 per square foot, reflecting a 4.7% increase from the previous year. Vacancy in the Knoxville retail market is currently 2.9%, showing a 0.2% increase over the past 12 months. During this period, 287,000 square feet of retail space has been delivered, and 182,000 square feet has been absorbed. About 229,873 square feet is currently under construction, representing a minor 0.4% expansion of inventory. In the past 12 months, there have been 214 sales in the Knoxville retail market, totaling $198 million in sales volume.

Johnson City

Market Overview

Although Johnson City has one of the smaller retail footprints in the country, there is tremendous room for growth in the market. Employment growth has outpaced population growth, with jobs increasing by 1.8%, while the population has grown by 0.2% in the past 12 months. Deals involving General Retail steered annual sales volume, accounting for $26.3 million of the metro’s sum in the past 12 months. Over the past three years, rents have experienced a cumulative 15.5% increase.

In the past 12 months, 45 sales have taken place, averaging $155 per square foot.

Market Performance

The current vacancy rate in the Johnson City retail market is 1.3%, indicating a highly occupied market. Over the past 12 months, vacancy has decreased by 0.6%, with 61,600 square feet absorbed and 29,100 square feet delivered. Rents are around $15.88 per square foot, reflecting a 4.5% increase from the previous year. About 21,250 square feet is under construction, representing a minor 0.2% expansion of inventory. Over the past three years, there have been 153 sales, totaling approximately $153 million.

Anderson County

Submarket Overview

The Anderson County submarket is a regular target among retail investors in the Knoxville metro. Over the past three years, rents have increased cumulatively by 15.0%. There have been 86 sales during the same period, totaling approximately $92.0 million. The market cap rate has edged up in the past 12 months to 7.7%, which is higher than the region’s average.

Within this submarket, General Retail is the largest subtype, comprising 3.5 million square feet.

Submarket Performance

The current vacancy rate in the Anderson County retail submarket is 1.8% and has decreased by 0.3% over the past 12 months. During this period, 98,000 square feet has been absorbed, and 83,700 square feet has been delivered. Rents are around $16.56 per square foot, indicating a 4.5% increase from the previous year. About 12,000 square feet is under construction, representing a minor 0.2% expansion of inventory. In the past 12 months, 20 sales have taken place, averaging $96 per square foot.