SOUTHEAST SNAPSHOT, OCTOBER 2008

Knoxville Multifamily Market

Knoxville has been rediscovered recently by both local and national multifamily investors. Both completed development and property transfers have been strong, and the pipeline for new units shows that developers and lenders remain confident in the continued growth in this east Tennessee market. Occupancy and rents are generally stable, with occupancy holding at about 95 percent.

Student Housing demand remains very strong, and the city is supporting major redevelopment projects along the Tennessee River across from downtown. The South Waterfront Development project will include the 122-unit Cityview at Riverwalk condominium project by Focus Group of Atlanta.

While residential condo sales in all submarkets remain soft, the area has not experienced condo reversions or other significant negative impacts to the multifamily market. New units coming on line have steadily leased up, and both rental and occupancy rates have generally remained strong and steady. REIS reports overall second quarter 2008 vacancy rates in Knoxville at 5.5 percent, compared to 6.9 percent for the South Atlantic region. The Northwest submarket as defined by REIS has the lowest vacancy at 3.9 percent, followed by the Southwest at 4.7 percent, outer counties at 5.8 percent, the Southeast at 6.3 percent and the Northeast submarket at 9.1 percent.

Since the beginning of 2007, permits have been issued in Knox County for more than 1,700 units, and another 1,000 to 2,000 units are expected to come on line by 2010. This is about 10 percent of Knoxville’s inventory of 26,901 units, as reported by REIS. Knoxville’s new units were mostly in the West submarket, but two strong, Class B projects are being developed in the fast growing North submarket.

Construction of new properties in the West submarket is generally Class A or strong Class B. Typical monthly rents for a one bedroom/one bath are $740, $850 two bedrooms/1.5 baths and $1,200 for three bedrooms/two baths. Trends for the new properties include garden-style apartments in gated communities, larger square footages and garages. We also see more amenities included in the rent to justify maximum rents, including cable TV packages and high-speed Internet.

Legacy Pointe in Knoxville.

The development in the North submarket follows years of strong single family development and successful retail projects. Legacy Pointe, a 252-unit, market-rate complex, has just started leasing on Pleasant Ridge Road, just south of Schaad and Callahan roads. The Bluffs at Beaver Creek, with 160 units, is just east of Interstate 75 between Callahan Road and Emory Road. Rents start at $695 for a one bedroom, $820 for a two bedroom and $1,050 for a three bedroom. Legacy Pointe will rent for $30 to $50 per month higher. Since January 2007, transactions of existing properties of more than 100 units totaled more than $266 million for 4,162 units, for an average of $63,912 per unit. Housing for the 26,400 students at the University of Tennessee-Knoxville continues to be in high demand. 

Developers are coming from all over the Southeast to build in Knoxville, and the primary targets are young professionals and students. Our perception is that student housing demand will continue to be strong, leading to more new development. In addition, we expect demand to result in new infill projects in west Knoxville, along the Pellissippi Parkway corridor both north and south of interstates 40 and 75. We also foresee unmet apartment housing demands in Blount and Sevier counties.

— Jim Simpson, Steve Goldman and Melissa Rumburg are part of the Multifamily Group of Coldwell Banker Commercial Wallace and Wallace in Knoxville, Tennessee.

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