The 7.7-million-square-foot metro Knoxville community-neighborhood shopping center market showed surprising strength in the face of extensive new supply. The second quarter vacancy rate was 10.9%, with a decrease to 10.7% in the third quarter, according to preliminary data. These rates are little changed from the past couple of years. This stability is despite the completion of the 150,000-square-foot Landings at Cedar Bluff neighborhood center in June and the 211,900-square-foot first phase of the Northshore Town Center community center in July. Both are in outer Knox County. Reis predicts the vacancy rate will end 2012 at 10.8%, then slide below double digits as new construction slows.
Both the average asking rent and the average effective rent slid 0.2% in the second quarter, to $13.94 psf and $12.15 psf, respectively, reversing the first quarter’s gains. Preliminary third quarter data show a 0.4% gain in the asking average, however, and Reis predicts increases of 0.3% asking and 0.5% effective for all of 2012. Rents have been weak here since 2007, but Reis predicts gains of 1.1% asking and 1.7% effective for 2013 followed by annual gains of 2.0% to 3.0% per year.
“One of the most encouraging signs for the retail industry is that the era of massive big-box vacancies appears to be diminishing,” according to Cushman & Wakefield. Reis puts the second quarter power center vacancy rate for metro Knoxville at just 5.0%, down 190 basis points from a year earlier and well below the U.S. rate of 6.3%. The local average asking rent is given as $19.66 psf, up 0.3% year-over-year. Although no power center space is under construction, 862,000 square feet is planned in three projects on the outskirts of the metro area.
“The vacancy rate went from 5.2% in the previous quarter to 5.0% in the current quarter,” Cushman & Wakefield reported on 54 million square feet of total Knoxville retail space. “Rental rates decreased from first quarter 2012 levels, ending at $11.13 psf.”