2020 // Commercial Real Estate

Booming Business Fueling Record Demand

 

Driven by a red-hot economy fueled by new companies locating or expanding operations in Southeast Tennessee, new business growth, successful entrepreneurial startups, and a thriving tourism industry, demand for commercial real estate in the Chattanooga area is booming.

 

Did You Know?

From 2014-2018, roughly 186 expansion or new construction projects were announced totaling a cumulative investment of $5.2 billion.

Photo by Michael Miller

 

 

 

In 2018, the gross domestic product for the Chattanooga, TN-GA statistical marketing area (SMA) grew 4.5%, and unemployment has reached a record low of 2.8%. In comparison, the GDP for the United States grew 2.9%, and unemployment stands at 3.6%.

Supporting growth for the SMA has been international advanced manufacturing companies locating or expanding operations in Southeast Tennessee. Also adding to the growth are large U.S. companies expanding current manufacturing operations.

Other areas contributing to the economic growth are local companies and startups. In 2019, 13 Chattanooga companies made it on Inc.’s list of 5,000 fastest-growing companies, up from nine companies in 2018 and five in 2017. Inc. heralded the Scenic City as one of the best places to launch a startup.

Tourism in the Chattanooga area continues to grow and now exceeds $1.1 billion. Every day, 11,000 visitors stay for the night. Over the course of a year, the industry entertains 5 million visitors and employs 8,800 people.

Further supporting the local economy is the influx of seniors to the Chattanooga area. Today, the fastest-growing demographic groups in the Chattanooga area are aged 55 or older who are seeking the area’s low cost of living, mild climate, and wonderful quality of life.

With this economic growth, demand has increased for all forms of commercial real estate including industrial, office, retail, multi-family spaces, hotels, and health care.

The sector that has seen the largest change over recent years is industrial real estate. Investments and announcements have included Nippon Paint USA’s $61 million plant in East Chattanooga; Volkswagen’s $800 million commitment to produce electric vehicles at its Chattanooga facility; Mars’ $142 million expansion of its M&M’s® production plant in Cleveland, Tennessee; and West Star’s initiative to boost its number of workers at the Chattanooga Metropolitan Airport and develop the 13-acre former Air National Guard site. Mueller Water Products has a $28 million expansion slated for its 500,000-plus-square-foot plant.

With the demand for industrial real estate, the 1,200-acre Enterprise South Industrial Park has been the site of major investments over the years and has little remaining vacant space. In Q2 of 2017, the Chattanooga area saw an industrial vacancy rate of 6.1%. Since then the vacancy rate has dropped to a low of 4.2%.

As companies have expanded operations and employment has continued to grow, demand for office space and multi-family spaces has followed. In the last two years, vacancy rates for office space have dropped from 4.5% to 3.9%.

With the population aging, more seniors are downsizing. This, in addition to millennials choosing to rent in place of owning real estate, is driving demand for apartments, while senior housing has continued to grow.

Further supporting the needs of the Chattanooga area are several mixed-use projects. Among these is riverfront property previously home to the Alstom facility. Builders have plans to turn the 112-acre area, which is already being dubbed West End, into a mixed-use hub with office, retail, and residential space situated in high-rise buildings. In Riverview, plans are in the early stages for a development that would include hundreds of homes, alongside new restaurants, retail, and medical facilities. On the Southside, developers are planning multimillion dollar, mixed-use developments.

Ooltewah’s mixed-use Cambridge Square development continues to offer plenty of retail options for new retailers, while developers are hard at work on Hixson’s Hillocks Farm property, which will feature 190 acres of mixed-use space. St. Elmo has also seen a proposal for a $21 million project that would add a mix of shops, residences, offices, parking, and a boutique hotel to the heart of the neighborhood, and roughly 20 new restaurants opened up in the Scenic City in 2019.

With the area’s economic growth comes demand for new restaurants, entertainment options, and retailers, and developers are delivering. A revamp of the Sears store at Hamilton Place Mall will welcome the relocation of Dick’s Sporting Goods, Dave & Buster’s, and other retail and office space. East Brainerd Road saw the addition of a new shopping center last year, and plans to open a Publix on South Broad Street have been given the green light. Retail and restaurant offerings are slated to come online following the development of the new Chattanooga Red Wolves stadium in East Ridge, which is estimated to take three to five years. Ooltewah saw the development of two new strip centers last year that added several dining options.

The area’s thriving tourism industry has further supported the development of hotel accommodations such as downtown’s Hotel Indigo and Bode: Chattanooga, East Brainerd’s Aloft, and the Southside’s Kinley – all of which appeared last year or are slated to make their appearance by the end of this year. In addition, The Read House, a popular and historic lodging location, completed a $27 million renovation last year, providing visitors with a unique place to stay.

Following the area’s growth and aging population, health care facilities have been expanding. The last few years have seen projects such as Children’s Hospital at Erlanger, the Erlanger Behavioral Health Hospital, and Tennova Healthcare – Cleveland’s Advanced Imaging Center come online.

As Chattanooga’s economy continues to strengthen, sustained growth is expected for commercial real estate.

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