A musical chairs situation for Kingsport apartments: What the Johnson City and Bristol markets look like

Kingsport will likely be the softest apartment market in the Tri-Cities for a while due to the volume of new product that has and is coming online in that community. It has created a sort of a "musical chairs situation" between some new complexes that have comparable rents to the 30 and 40-year old complexes. At the same time the apartment supply and demand in the Johnson City and Bristol areas is more balanced. That was one of the takeaways from Universal Development & Construction Principal Shane Abraham's market briefing at a Northeast Tennessee Association of Realtors® (NETAR) Commercial Multiple Listing Service (CMLS) meeting this week.

Abraham outlines the apartment market landscape.

 Abraham is a regional leader in the multifamily development and property management industry and his insights offer a valuable inside look at both the history and future of that industry in the Tri-Cities region. His comments were made for an audience of almost 40 NETAR commercial and residential Realtors®, local bank and credit union lenders and representatives from other real estate professions. It was one of the events that are part of a CMLS project funded by a National Association of Realtors® (NAR) grant to further community knowledge about commercial real estate and its role in the economy of Northeast Tennessee.

Kingsport has seen an influx of apartment product in the past year, and there are another 700 new units that will be hitting the market in the next 24-26 months. Abraham said if there is little new population "most of the stabilization will occur from attrition."  There are people coming out of leases in Kingsport's 30 and 40-year old complexes who are moving over to the new apartments that have comparable rents. "It's sort of like musical chairs." How this affects the current occupancy levels of the B and C products - how the new A class products fill up and who feels the pain remains to be seen. "It will be interesting to watch."

The Bristol Market seems balanced, but recent lease-ups were slower than 2014-2015 lease-ups. That market also saw very little if any population growth, he said.

The Johnson City absorptions have definitely slowed over the last 10 years with well over 2,000 new units built. Most properties still seem to be meeting national average occupancies, but there may still be pockets for small product success. Little new market supply will hopefully allow time for the market to tighten somewhat.

Here are a couple of the questions from the audience and Abraham's responses:

QUESTION - Do you see any local developers who are looking at projects through the lens of condo conversions?

ABRAHAM - We have thought about that. Almost all of our townhomes are legal townhomes and could very easily get single-family homeownership financing. We have thought about it, but it's not something we're counting on. It's sort of a backdoor scenario.

QUESTION - What do you see for the Tri-Cities Airport area?

ABRAHAM -  It's pretty rural out there. We would love to see something take place with jobs. I can't see us as a supplier of housing out there for quite sometime. There's probably some pockets for smaller developments in that area.

QUESTION - How do you see the airbnb market developing here?

ABRAHAM – We don't get into it. But it is here to say. A lot depends on how it's regulated. For instance, we check on our clients, but that's not always the case with airbnb, so all of that security we invest in is bypassed. I think you'll see a lot of regulation taking place.

QUESTION -  How are you handling the pets situation?

Pets are a dynamic of the market, and cost

ABRAHAM -  Twenty years ago, we just wouldn't allow pets and were full-up. I don't know if it was Parris Hilton and her pocketbook puppies or what but everyone's got a dog these days. You just have to live with it. You've got to have a revenue stream to keep up. For example, when you move into a newer project, we take a hair sample of your pet, and it goes on file with a company. If you not cleaning up after your pet, we send a sample to the lab, and they tell what pet it was. We've had a hard time justifying it here, but there's a company in North Carolina that is making it a lot easier. It's something you have to look at moving forward because it's hard to apply retroactively. But depending on the dynamics of the market if people are living longer in rental housing and they're going to have pets its something managers have to react to. Bark parks are also replacing basketball and tennis courts as amenities in complexes. "It's just adapting to the market."

QUESTION -  What role will multifamily developers play in demand for senior housing?

We're finishing a product in Elizabethton that has two and three-bedroom one-level units. It's hard to build to a price point that seniors in this market want or for those who are on fixed income can afford. It's a challenge. If you look at markets like Florida there are a lot of multifamily for this type client, but the rents a lot higher. "The challenge is finding the right balance. Some builders do build to one-level, bit it's a tough price point."