With the exception of the suburban office market, the overall Chattanooga, Tennessee, market has remained stable this year. The suburban office market has seen tremendous growth with several new projects underway. The city also is undergoing a major waterfront development that will revitalize the city.

Industrial

Chattanooga is poised for economic growth. The city’s industrial market has been slowed by the economy; however, local businesses have been resilient and experienced solid growth in 2002. This sector had a total of 20 projects with more than $98.77 million in industrial growth in 2002. The largest of these projects was Lock Joint Tubes’ $13.9 million expansion and Kenco Group’s completion of its 688,000-square-foot, food-grade, state-of-the-art distribution facility in the amount of $35 million. Year-to-date, there has been a total of $18 million worth of expansion in this sector with projects announced by Chattem Inc., Southern Champion Tray and Harper Wyman.

The downside to Kenco Group’s completion of its distribution facility was that it brought on line more than 450,000 square feet of warehousing space in two buildings. American Manufacturing recently announced a long-term lease and an expansion of 100,000 square feet in one of Kenco’s facilities.

Enterprise South Industrial Park is now positioned to accelerate the economic growth in Chattanooga. It brings on line more than 1,295 developable acres and 2,300 passive acres. This is a Class A industrial site that is zoned for manufacturing and has the infrastructure in place. Amy Walker Cherry, marketing consultant for this project, says, “It is a rarity. Enterprise South is a combination of a mega site along the highly traversed I-75 corridor with a readily available labor pool. A site of this magnitude has not been available in the Southeast in more than a decade.”

Industrial and warehouse rates have fallen by up to 20 percent over the last 2 years due to the amount of available space with rates being in the range of $2.30 to $2.60 per square foot, net. As the larger vacancies are absorbed, rates will increase back to where they were in 2000, in the $2.75- to $3-per-square-foot range. It could take up to 2 years to absorb the current vacancies so new construction will only be in the build-to-suit sector.

— David DeVaney, president, NAI Charter Real Estate Corporation, Chattanooga

Retail

Chattanooga, like many other second- and third-tier markets, is in a holding pattern with regard to retail investment. The city benefits from a stable economy and lower-than-average cost of living, but retail growth is modest and transactions are sporadic. Hamilton Place Mall is the primary retail nucleus and continues to drive retail development. CBL & Associates Properties is developing the Shoppes at Hamilton Place, a 130,000-square-foot retail center, and The Home Depot is planning a new store in the area. This growth has been facilitated by upgrades to the intersection of Highway 153 and Interstate 75, which improved access to the Hamilton Place Mall area.

The Hixson/North River area also is hot, as evidenced by Wolford Development’s new 100,000-square-foot Oak Park Towne Center. Faison is reportedly redeveloping Gadd Crossing, a 70,000-square-foot retail center in the Hixson submarket. The center, located at the intersection of Highway 153 and Lee Highway, was formerly anchored by Circuit City. Overall, new development in Chattanooga has been restricted due to limited site availability and strong community opposition. The dominant grocers in the market are Bi-Lo and Food Lion, but Publix is said to be seeking new locations in the market.

Downtown Chattanooga, which boasts the aquarium, museums, restaurants and assorted attractions, continues to draw residents and tourists who shop and support a strong retail component in that area. There are no significant recent retail sales transactions to report.

— Lynn Leonard, vice president of marketing, NewBridge Retail Advisors

Office

The Chattanooga office market remains stable, although the suburban market has experienced enormous growth. DeFoor Development has successfully completed more than 300,000 square feet of office condominiums on Shallowford Road. DeFoor recently announced two major projects, one on Gunbarrel Road and the other in the Hixson submarket. Both projects will consist of more than 100,000 square feet of office condominiums. Further, The Pointe, a suburban office complex, continues to successfully lease space in the two Class A office buildings with rental rates ranging in the $18 to $20 per square foot range. The CBL Center, a Class A tower that is approximately 131,000 square feet, was completed in 2002 and has less than 3,000 square feet remaining available for lease. The rents are in the $20- to $24-per-square-foot range.

The downtown market is soft in both Class A and B properties and has seen vacancy rates increase up to 18 percent in both areas. On the bright side, UnumProvident has expanded into more than 50,000 square feet of office space that TVA had for sublease, according to Bryan Rudisill of NAI Charter Real Estate Corporation. Cohutta Bank has announced its expansion into Chattanooga by leasing space from Chattanooga Land Company in its Market Center building. Other notable expansions include Regions Bank and Morgan Stanley. The Corker Group, which owns and manages more than 700,000 square feet, has seen vacancies increase from 10 percent to 15 percent across the board.

Kinsey-Probasco & Associates has announced that it will build a mixed-use facility with retail, residential and a parking garage adjacent to the Tennessee Aquarium. Atlanta-based Noro-GKJ has announced a similar project. The Aquarium is undergoing a $30 million expansion. This new construction will facilitate immediate economic growth and should stimulate the soft office market.

Rates for downtown properties have remained flat as there is ample quality space available. There has been very little movement by large office tenants and they seem content to renew leases in existing facilities. Rates for new construction are $19 to $22 per square foot and for second generation Class A space $14 to $18 per square foot.

— David DeVaney, president, NAI Charter Real Estate Corporation, Chattanooga

CHATTANOOGA’S WATERFRONT DEVELOPMENT PLAN This upriver view of the Tennessee River shows planned development, including the reconfigured Riverfront Parkway and Ross’s Landing Park, located at the site of the early settlement that grew into Chattanooga. Chattanooga is widely recognized in development circles for actualizing a public vision to revitalize its riverfront. Starting in the early 1990s with the completion of the Tennessee Aquarium and continuing with a number of additional riverfront projects, the community has pursued its vision and benefited from a dramatic increase in tourism as well as more than $1.4 billion in construction and development. In 2002, Chattanooga enlarged its commitment to revitalization when Mayor Bob Corker unveiled the 21st Century Waterfront Plan, the most ambitious vision yet conceived by a community known for thinking big. More than 300 people attended meetings that defined a vision for completing the city’s “return to the river.” Mayor Corker utilized the vision to build a $120 million public-private partnership that will fund the comprehensive development strategy, which is on schedule for completion by May 2005. Major Elements of the 21st Century Waterfront Development Plan   The Southern Belle sails down the Tennessee River, past the Tennessee Aquarium, the world’s largest freshwater aquarium and the centerpiece of Chattanooga’s renaissance and return to its river roots. • A freestanding saltwater habitat exhibit expansion of the Tennessee Aquarium. This 60,000-square-foot facility is being constructed adjacent to the existing aquarium and will house a 650,000-gallon saltwater tank and a glassed-in roof top where children may explore interactive saltwater habitats. The designers are Chermayeff, Sollogub & Poole, the original architects of the Tennessee Aquarium. • The expansion of the Hunter Museum of American Art, a major cultural institution, and its reconnection to downtown across a pedestrian bridge and new public plaza along First Street. This 50-year-old, $75 million asset sits in the middle of a thriving arts district overlooking the Tennessee River. The architect is Randall Stout of Los Angeles. • The refurbishment of the Creative Discovery Museum, a nationally recognized children’s interactive museum. Ranked among the best 15 children’s museums nationwide, this popular attraction is freshening up and expanding its interactive offerings for visitors. It is three blocks from the Tennessee River in the Aquarium District. • The creation of a top quality waterfront park at Ross’s Landing. The park will have a 40-foot-wide pier into the Tennessee River, expanded transient boat docking facilities, expansion of the river walk along the river and Riverfront Parkway, improved public parking facilities and a below-grade pedestrian passage from Market Street to the river. Designed by Hargreaves and Associates of Cambridge, the park will accommodate people who want a quiet, shady place to sit by the river; those who want to dock their boats and spend a weekend enjoying downtown; and those who want to party and listen to music in a beautiful park between the city and the river. • A large parcel of undeveloped land will become the site of a wetland park on the north shore of the river next to the acclaimed Coolidge Park and the all-pedestrian Walnut Street Bridge. This wetland park will feature an adventure playground, an extension of the riverwalk and educational opportunities focused on wetlands and stream reclamation. In addition, the plan includes a number of parcels that are intended for private development. To date, the city has identified developers for two of these projects: • Kinsey-Probasco and Associates, of Chattanooga, is slated to develop a mixed-used project consisting of approximately 13,000 square feet of retail space, approximately 35,000 square feet of residential space (totaling 20 to 25 condominium units) and a 368-space parking garage. The project is located adjacent to the Aquarium at Second and Chestnut streets. It is scheduled to start construction next year and will be completed in May 2005. Total project investment is approximately $17.5 million. • GK Johnson/Noro Development of Atlanta will construct a mixed-use development consisting of approximately 55 condos and 15,000 square feet of retail near a newly created Riverfront Parkway. Chattanooga planners have also identified as many six additional downtown parcels for development over the next 3 to 5 years. — Ann Coulter is executive vice president of River City Company, a private, non-profit company chartered to assist Chattanooga city and county governments and the private sector in their efforts to spur economic development.

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