"Anticipation" is the most commonly used word concerning the downtown office market in Chattanooga, Tennessee. With a number of new projects underway or recently completed, the commercial real estate industry is looking forward to a prosperous future.

New activity in the area includes Chattanooga Land Company' completion of a speculative office building that has had excellent success in leasing. This building is currently 75 percent occupied. Chris Crimmins, vice president of Chattanooga Land Company, closed the most recent lease, which was signed with Barge, Waggoner, Sumner & Cannon. The Electric Power Board (EPB) is developing a downtown block that will feature an approximately 100,000-square-foot office building and parking garage. The EPB plans to use over 90 percent of the building for its own use with the balance designed for retail or office space. The Corker Group owns and manages over 700,000 square feet of downtown office space and has a vacancy factor of less than 10 percent. The Corker Group is experiencing more activity than seen in the summer of 2001.

There has been a rise in properties being placed on the market for sublease, and owners are seeing an increase in vacancy rates. "However, there are no large blocks of space available -- particularly Class A office space of 10,000 square feet or more in the central business district (CBD)," says David DeVaney, president of NAI Charter Real Estate in Chattanooga. Several years ago, East Gate Mall was transformed into a town center with half of the retail space being converted to office space. In 1999 and 2000, several downtown tenants moved to East Gate Town Center. Since then two major suburban office buildings have been developed.

Local firm CBL & Associates has completed a 131,000-square-foot, six-story office project and has several major tenants. There is less than 8,000 square feet currently available, and the asking price is $24 per square foot.

Commercial Management of Chattanooga purchased 50 acres and has completed two buildings totaling 70,000 square feet. The 1200 Building encompasses 31,000 square feet and is 93 percent leased. The newest building, completed in February, is 39,000 square feet and is 66 percent leased. Arcadis Geraghty & Miller, represented by DeVaney and Trammell Crow Company, is the lead tenant with 20,000 square feet. The CBD was impacted by these suburban developments when a few firms moved from downtown offices to the suburban market.

"Overall, there has been more development in the suburban market than the downtown market," DeVaney notes. "This has to do primarily with the cost of land and steady growth in the East Brainerd area. Also in East Brainerd, locally-based DeFoor Development has developed over 100,000 square feet of office condominiums in the last 2 years and has had steady success in selling and leasing the property."

Downtown has the major business tenants, such as law firms, banks and accounting firms. Also, Cigna, TVA, UnumProvident and Blue Cross Blue Shield have large blocks of space in the CBD. TVA recently elected to put 11 floors at 10,000 square feet per floor on the market for sublease in the Chestnut Towers. Bryan Rudisill, SIOR, vice president of NAI Charter Real Estate, along with David Nixon of the Atlanta office of CB Richard Ellis, is representing TVA in the marketing of this sublease space.

The Loveman' on Market is a large downtown building that is being redeveloped for upscale condominiums. The first two floors, representing approximately 30,000 square feet, will be office or retail. Several key tenants have looked at this space due to its attractive location and on-site parking. This project is scheduled to be completed by year-end.

UnumProvident is consolidating its surface parking lot and building a parking garage. "In doing this, it frees up land for office development expansion to meet UnumProvident' future needs," DeVaney says. "This is a strong boost for the Chattanooga market for it shows UnumProvident' commitment to stay in Chattanooga and expand in the CBD. UnumProvident is the centerpiece of Chattanooga' CBD."

David F. DeVaney, CCIM, SIOR, is president of NAI Charter Real Estate in Chattanooga, Tennessee.


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