Ahead of Demand – The Developer Risk of Chattanooga


Three things of note from this article about one of the new mixed use building downtown:

  1. “…opened in September 2017 and has been slow to fill with retail and residential tenants since then.”
  2. “…the leasing agent for the building said that a little over 50 percent of the units are still vacant but they are seeing things pick up.”
  3. The new restaurant is owned by the building developer

If I were in the midst of building an apartment building downtown I’d be very nervous.

The saving grace for this and many of the other projects already finished are that their ground price is low enough that even at 50% vacancy they can make money. With ground prices rising quickly towards $100/sf it will require closer to an 80% occupancy before the developer is making money and clearly the market demand isn’t there yet.

Still the big issue for Chattanooga is actual supply of restaurants and service retail. There’s way more space than there is demand.

As a side note the retail rates quoted for the building are the same as the vacant North Shore retail spaces.