(EDITOR’S NOTE: This is the first in an ongoing series on land use and development in the Knoxville Metropolitan Statistical Area (MSA). Look for future articles covering the “State of the County” report, industrial land, nearby counties, and more in upcoming editions of Teknovation Weekend.)
By Kailyn Lamb, Marketing Content Writer and Editor, PYA
Much like the local housing market, land in the Knoxville MSA has become a hot commodity.
The MSA includes 11 counties according to Census data, and includes Anderson, Blount, Campbell, Grainger, Jefferson, Knox, Loudon, Morgan, Sevier, Roane, and Union counties. Maribel Koella, NAI Director of NAI Koella | RM Moore, said vacancy rates across current space for industrial, multi-family, and retail are low, driving prices up.
“We have spent years marketing our area and recruiting industry and incentivizing industry,” she said. “Our inventory is getting lower and lower and lower. When that happens, people start looking for land to start building buildings, and therefore land prices start going up.”
Although vacancy is low across the board, the different sectors have seen varying increases in rent. In the industrial sector, vacancy was lowest at less than one percent, with a 12 percent increase in rents in the last year. Industrial land for future projects has been getting harder and harder to come by. Much of the land that had been available in Loudon County is now under contract, Koella said. The same story can be said for other counties in the surrounding area. “We’ve been looking for land, and it’s hard to come by,” she said.
In a sector that is probably familiar to Teknovation Weekend readers (find our coverage on housing here and here), multi-family projects have a vacancy of 2.9 percent. Rental rates for apartments saw a staggering increase of 15.7 to 20 percent, an increase above the national average.
Rise in rent is of particular concern. Staff at the Knoxville Chamber have been working to attract talent to the Knoxville region, particularly in the 25-54 age range. Attracting people here becomes more difficult if those workers can’t find a place to live. This is only one section of a five-year strategy from the Chamber, Path to Prosperity, which seeks to improve local infrastructure, small business, and economic development. Nancy Nabors, Director of Regional Enhancement at the Chamber, added the lack of workers impacts the amenities such as greenways, parks, and restaurants.
“This community needs to start thinking about where are we going to put (workers),” Nabors said. “All these amenities that people want more of, we need more workers and property taxpayers to help support them.”
Retail is sitting at a 3 percent vacancy rate with a 5 percent rent increase. Koella said they are not seeing many people interested in building new retail space, but the shortage of land still has an impact on that sector. Office space currently has the highest vacancy rate of the four, with 4.4 percent, and also saw the smallest rent increase: 2.1 percent. The increase is small enough that Koella said it’s unlikely people will want to build new office space.
“We don’t have many people doing that because there’s not enough of a profit margin,” she said.
When I asked Koella about where the “hot” areas were in Knoxville, she started by saying that interest “keeps moving further west,” with West Knoxville being a popular area for development. However, she added that there has been growth in North Knoxville, and road improvements have drawn attention to the southern area as well. As for East Knoxville, the stadium project is likely to draw development there. In other words, it’s everywhere.
“The thing is, to get land is pretty tough,” Koella added.
Outside of land, redevelopment is also on the rise in all four sectors. Knoxville has become a desirable area to invest in, she said, adding “there’s a lot of money chasing product right now.” Investment properties are selling fast.
“In the past, 10 years ago, we didn’t have the big investment funds looking at our area,” Koella said. “Now we have the large investment funds out of Chicago and New York and looking at our area for product to buy.”
Investment and other properties being redeveloped come with their own set of problems. “Some of our current zoning policies make it challenging,” Nabors said.
One possible solution, for example, is allowing more diverse housing options “by right” in specific zones. That allows projects to proceed with less risk, time, and expense—savings that can be passed to consumers and invested in amenities.
Koella agreed, adding that cities can also incentivize developers to build where there are vacant buildings, unused parking lots, or even blighted property. Empty department stores are an ideal location for redevelopment, Nabors said, adding “we need to look at what’s available, what’s not being utilized.”
The increase in land and building prices causes a ripple effect that moves down to renters, increasing their prices. In short, “what’s going on right now is not sustainable,” Koella said.
Rising land prices will also start to have an effect on nonprofits such as Knoxville Habitat for Humanity. The local organization works to purchase land to built affordable housing. Eligible clients of Habitat can live in the house and receive a 30-year interest free mortgage. The nonprofit told teknovation.biz that it receives around 700 requests annually for housing. You can read that article here.
The article also touches on a “Readiness Fund,” which had raised around $4.5 million in April, and was aiming to hit $5 million by this summer.
“We’re competing with commercial builders as land becomes available,” Habitat’s President and Chief Executive Officer Kelle Shultz said in the article. “By building and sustaining a ‘Readiness Fund,’ we can continually purchase, develop and maintain buildable land inventory to serve more families each year.”