Industrial leasing activity in the Knoxville market slowed in 2022, but that slowdown is more due to a lack of available space rather than any weakness in the market. The metro’s vacancy rate of 0.9% is one of the lowest in the Southeast region, and large availabilities are rare. While there is some supply in the pipeline, most of the space under construction is preleased, so vacancies will likely remain relatively low over the next several quarters.
Owners are capitalizing on the tight market and are raising rents at a brisk pace. Year-over-year rent growth of 11.6% marks an improvement compared to rent gains posted in the quarters following the onset of the pandemic. Asking rents are now more than 40% above rates from 2017. Given that availabilities remain exceedingly scarce in the Knoxville metro, property owners may be able to continue raising rents at an above-average pace over the next several quarters. Average asking rents of $7.73/SF are also roughly in line with those found in Chattanooga, and both metros come at a 25% discount to rents in Nashville.
Deal volume in Knoxville has remained consistent following the onset of the coronavirus pandemic, and quarterly deal volume has remained right around or above the metro’s five-year average. Despite the slowing, transactional pricing within the industrial segment in Knoxville exceeded $70/SF in 2022. Just five years ago that average was about $39/SF. While there is a likelihood that deal flow, and potentially pricing, start to drop in the coming months due to concerns surrounding the economy and rising interest rates, it’s clear that there is demand locally. Market pricing trends indicate that SF pricing increased by 15% year over year. Additionally, cap rate compression has slowed in recent years, with the figure sitting just under 6.8%.
Notable Baker Realty Company Transactions in Q4
– Leased 108,400 SF Warehouse in Westbridge Industrial Park
– Leased 50,000 SF Warehouse in Westbridge Industrial Park
– Pre-leased 62,000 SF Warehouse in West Knoxville
– Sold 108,000 SF Warehouse in Maryville – Investment
– Sold 125,000 SF Warehouse in Downtown Knoxville – Investment
– Pre-leased 165,000 SF Warehouse at Middlebrook Farm Industrial Park
– Leased 7,360 SF Warehouse at Middlebrook Industrial Park