Hints of Recovery Seen in Knoxville's Office Property Market

While selected indicators marked continued sluggishness in the Knoxville economy in 2011, hints of recovery were evident in the area's office property market. Building vacancies dropped as absorption rates improved, and small gains were recorded in rental rates throughout much of the market. Details about Knoxville's office property market trends and national performance measures are given in the 2011 Office Market Analysis, recently released by MPC. The report, now in its 28th year, also provides building-by-building information for Knoxville's office properties, including gross and rentable space, vacancies, rent rates, building services, and lease terms.

Throughout 2011, the U.S. economy showed signs of recovery. The first three quarters of payroll employment were in the black, adding more than 1.2 million jobs nationwide, while unemployment fell to 9.0 percent, down from 2010's rate of 9.6 percent. Office market fundamentals across the country responded as vacancy rates dropped 130 basis points from the third quarter of last year, to 16.2 percent availability in the third quarter of 2011. In Knoxville, the economy resisted improvement as local job growth added 3,800 new positions during the first three quarters of 2011, down from the 4,400 registered over the same period in 2010. Local unemployment climbed to 7.9 percent in the third quarter of 2011, up from 7.6 percent in the third quarter of 2010.

Although local employment measures indicated economic setbacks, the Knoxville office market saw signs of improvement in 2011. Areawide fundamentals showed promise as vacancy rates dropped from 16.2 percent in 2010, to 14.9 percent this year. Knoxville's suburban properties experienced a sizeable decrease in available space from 17.4 percent in 2010, to 15.3 percent vacancy in 2011. Downtown properties, on the other hand, saw vacancies climb 50 basis points to 14.1 percent.

Occupancy rates improved in Knoxville's suburban markets, with absorption in the black for the first time since 2008. Suburban absorption totaled 380,209 square feet in 2011. Downtown absorption showed some improvement from the previous year but was still negative 26,825 square feet in 2011. As a result, areawide net absorption was 322,470 square feet. Contributing to downtown troubles were three sizeable chunks of unused space: Kimberly-Clark Administrative Center with 80,000 square feet available, TVA East Tower with 70,800 square feet, and William F. Conley Building with 60,821 square feet.

Two large local projects completed in 2011 were the 111,647-square foot Center for Advanced Medicine on Clinch Avenue in the Central/East/South sub-market and the 99,130-square foot FBI Building in the Dowell Springs Business Park in the West City sub-market.

Knoxville's suburban office markets garnered higher average rental rates this year, $15.59 per square foot, compared to the downtown market rate, $14.34. The areawide average increased 1.2 percent from $14.79 in 2010 to $14.97 in 2011.

To purchase copies (paper or digital) of the 2011 Office Market Analysis contact Bryan Berry for more information (865-215-2500, or email: bryan.berry@knoxmpc.org).

Posted 3-07-2012, written by Bryan Berry