SOUTHEAST SNAPSHOT, AUGUST 2009

Chattanooga Industrial Market

In recessionary-era Chattanooga, the industrial market — even, to a point, the commercial real estate market in general — is driven by the approaching opening of Volkswagen’s 1,340-acre plant. The 1.9 million-square-foot facility is expected to open in 2011, creating jobs for more than 2,000 workers.

In the January issue of Southeast Real Estate Business, J. Bryan Rudisill of Chattanooga-based NAI Charter estimated that the plant’s economic impact will be greater than $500 million, and 9,000 additional jobs will be created by auto parts suppliers drawn to Volkswagen’s shadow. In the issue, Rudisill wrote that “without question, the Volkswagen plant is the biggest news in the Chattanooga community in the past 50 years.” George Elder of Sperry Van Ness|Elder Healy Commercial agrees. While he says news of the coming facility hasn’t yet fully impacted the industrial market, it most certainly will be a major driver for years to come. 

“Everyone seems to be holding their breath until Volkswagen gets closer to opening,” Elder says. “Our city is being inundated by supplier groups for VW, and other industries are moving into this market to service and supply all of the new companies.”

Wacker Chemical Company has also announced its intention to build a $1 billion facility in Cleveland, Tenn. The solar panel producer is just one company in the wave of firms that have come to the area on the heels of Volkswagen. Alstom Power is also investing $350 million for a location near Chattanooga.

“The new plant, with its supply chain, will help lift the local economy and sustain steady growth for the future,” says Chad Wamack, managing director of Grubb & Ellis|Hudson in Chattanooga.

Industrial vacancy, however, is a different story. As tenants wait on the sidelines for the Volkswagen plant, the vacancy rate for large warehouse space has ballooned to 15 percent. The overall industrial vacancy rate sits at 20 percent, a number that, according to Elder, is extremely high for the market.

Wamack echoes Elder’s assesment. His office estimates that the vacancy rate has slowly ascended to its current perch from 5 percent in 2007; 2008’s rate stood at merely 7 percent. In a market of more than 35 million square feet of warehouse space, these numbers have a big impact. “Vacancy rates continue to climb even with limited new construction in the market,” Wamack says. “Tenants have been able to take advantage of the market by signing long term deals to provide owners with security. Users looking to be owners of existing space have led the activity in the market.”

Recently, developers in Chattanooga have focused their efforts on repurposing downtown spaces and creating a better quality of life for the city’s residents. This trend doesn’t erase the city’s long history of manufacturing development, but it can help keep the industrial vacancy rate down.

For his part, Elder is certain that Chattanooga can, in the very near future, get its slowly rising vacancy rate down to a more reasonable level. The coming industrial development, coupled with a responsible development community, bodes well for the area.

“Chattanooga has the advantage over many major cities in that the city does not go through overbuilding,” Elder says. “As a result, we do not have busts in our market.”

— Jon Ross

©2009 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.