The Sky is Not Falling

I was scrolling through CNBC a few days ago, as one does on a long holiday weekend, and came across an article about the coming commercial real estate crash (that may never happen).

The piece was full of quotes from experts, investors, and funds, asking important questions about market conditions for commercial real estate right now.?

What They’re Saying

• Will the collapse of Silicon Valley Bank and Signature Bank in March 2023, along with the pending regional banking crisis, trigger a real estate crash?
• Office vacancy rates topped 18% nationally at the end of 2022. Is the persistent work-from-home and hybrid working trend threatening too many bank real-estate loans?
• Across the US, almost a quarter of office-building loans need to be refinanced in the next year at much higher rates. How many owners, already suffering low vacancy, will be forced to default???

These are good questions and valid trends to monitor. But over the last decade in the industry, I have found the success of real estate investments to be more grounded in local and regional economics than in national trends.?

So let me tell you what I’m seeing in our corner of the world.

What I’m seeing

The Southeast US hosts a diverse economy, including a strong business base and an equally robust tourism economy. While experts quarrel over bank rates and home office trends, the travel and tourism industry is predicted to surge 30 percent this year, driving economic vitality across the region.?

While national office-building vacancy rates topped 18 percent last year, our hub in Chattanooga, Tennessee, fared much better at just 4.2 percent. Retail vacancies came in under 3 percent, proving a resurgence in the retail landscape.?

The pandemic pushed all of us to examine our priorities and our lifestyles, driving new directions in work, housing, and travel. The Southeast region offers mild climates, strong economies, and relatively low costs of living, making it an ideal relocation market for young professionals. Nine of the top 15 cities for relocation last year are located in the southern US.?

In 2022, the US Census Bureau noted that Tennessee ranked 7th out of all 50 states for population growth, driven largely by relocations. These new residents need housing, storage, retail, and services, which drives demand across multiple real estate sectors.

What I’m doing

Population growth drives all kinds of economic and service needs that trigger real estate demand. So while financial reporters sit at their laptops in Manhattan pounding out articles on potential real estate crashes, my team has been busy supporting this explosive economic growth in Tennessee and across the Southeast.?

We ended 2022 by adding nine local advisors to our team, and demand continues to grow. These real estate rock stars specialize in commercial, multi-family, retail, and industrial real estate, giving our clients access to a diversified knowledge base.

Our portfolio includes 2 million square feet under management and growing. Again, the properties are diversified across a range of industries.?

In April, my team traveled to Memphis to evaluate a mixed-use development project. This western Tennessee hub is a top-50 economy in the US with a varied business base, ranging from finance and insurance to manufacturing and warehousing.?

We’ve seen smart real estate investments continue to thrive in this market.

Last week, I started exploring a multi-family development in Knoxville, Tennessee. Holding down the eastern end of the state, Knoxville hosts a strong healthcare sector, as well as manufacturing and jobs in the scientific services sector. With an average cost of living a full 16 percent lower than the national average, it’s a place that continues to attract transplants from around the country - from college students to working professionals to relocating families. Multi-family projects with the right financials present a huge opportunity in this kind of market.

The Bottom Line

So while I continue to keep informed of market trends, expert opinions, and national predictions, my team and I spend most of our time capitalizing on opportunities for growth in this dynamic real estate market.?

Every point in the real estate market cycle calls for prudence and deliberate decision-making, and 2023 is no different.?

But national trends are not indicative of every market. A 20 percent vacancy rate in New York demands a different response than a 4 percent vacancy rate in Chattanooga.?

For anyone interested in real estate investing, the Southeast is a thriving and profitable market when you understand the trends, diversify your investment, and partner with a knowledgeable real estate expert.?

For more information on our projects and how you can participate, visit us at secondstory.properties.

Still considering your next real estate move? Check out my article: Is multi-family real estate investing right for me?