Downtown Workforce Gains are Spotty
Downtown is clearly flourishing as a place to live, but growth in the number of people working downtown is also important to its vitality. While there are some signs of progress on this front, there are also a lot of holes that remain to be filled.
According to the Central Business Improvement District’s Michele Hummel, downtown employment has grown from 21,602 at the end of 2002 to 23,171 at the end of last year. And if these numbers were accurate, they would be most encouraging. However, the CBID gets its data from compilations by the state Department of Labor, based on the number of workers who get their paychecks from employers with downtown addresses. In the case of Knox County Schools, for example, that includes all 6,800 of its employees, whereas only 200 of them work at its central office in the Andrew Johnson building.
Still, the growth shown over the past three years may be more nearly accurate, and to judge by the Labor Department’s data, most of it is in the private sector. A breakout of employment by downtown-based businesses shows an increase from 6,600 at the end of 2002 to 8,100 at the end of last year (though these numbers are subject to the same distortions as the department’s aggregates).
Just where this job growth is occurring is harder to discern, since the Labor Department won’t divulge numbers for individual employers. Much of it appears to be centering, though, in the three large office complexes that commercial realtors deem to be downtown’s top-of-the-line, or Class A, space. These include First Tennessee Plaza, Riverview Tower, and the two buildings that comprise the Centre Square complex.
“The Class A market is very strong with very few vacancies,” says commercial realtor Joe Petre. In the case of Centre Square, 21st Mortgage, which owns one of the two buildings, has nearly doubled its work force to more than 500 within the past two years. In the other, Community South Bank, which started with a handful of employees three years ago, has grown to nearly 70, with more growth in prospect.
Further evidencing the strength of the Class A market is the recent acquisition of two of these buildings by large national real-estate investors. A Houston-based firm acquired the 367,000-square-foot Riverview Tower from Lawler Wood last year for $41 million. A Chicago-based firm recently acquired the 110,000-square-foot Two Centre Square from a partnership managed by local developer Nick Cazana. Neither Cazana nor the buyer will reveal the price.
For all of that, commercial realtors don’t foresee construction of any new Class A office buildings downtown anytime soon. “There’s a disconnect between investors and users,” says Brad Blackwell of Wood Properties. “New construction costs have got to command rental rates beyond what users are prepared to pay.” By several accounts, a new Class A building would require rents in excess of $20 per square foot whereas the top rates for downtown office space are presently in the $16 to $17 range.
Another deterrent to creation of new space is the overhang of TVA’s vacated East Tower with 232,000 square feet of space that’s been begging for takers for several years. After developer Sam Furrow failed in an attempt to find tenants when he had an option on the building, TVA has been trying to market it on its own. Recently, TVA retained a Los Angeles-based firm, CB Richard Ellis, that holds itself out as “the global leader in real-estate services.” According to TVA spokesman John Moulton, “We’re working with CB Richard Ellis to develop a marketing plan and strategy to hopefully attract a company from somewhere else that would add to downtown employment.”
The one new downtown office building that’s on the drawing boards is a 45,000-square-foot or more addition to Home Federal Bank’s headquarters on the site where the razed Sprankle Building used to stand on Walnut Street. Work on the addition is due to start next year to accommodate further growth in Home Federal’s downtown work force, which presently totals 227.
The closest thing to additional Class A space coming on the market is in the Bank East building on Market Street. A $7 million renovation, including a sleek new glass façade, has brought that 110,000 square-foot, 11-story building “from C-plus to A” according to its rental agent, Matt Fentress of MAI Knoxville. An expansion by one law firm and the attraction of two others along with Bank East’s own expansion to occupancy of four floors has reduced the building’s vacancy rate to 20 percent from close to 50 percent, Fentress says.
Still other new bank entrants to the Knoxville market are contributing to downtown job growth and office space consumption. West Tennessee-based First Bank has taken space and affixed its name to what was long known as the Bank of Knoxville building. And Clayton Bank & Trust has brought 23 jobs to its headquarters in One Centre Square.
It remains to be seen, however, how much of a downtown presence Regions Bank will retain following its merger with AmSouth Bank. AmSouth’s headquarters on Bearden Hill or a building now under construction in Turkey Creek in which Regions has leased space could be beckoning Regions employees who now populate its headquarters in the retrofitted Post Office on Main Street.
Stemming migration to the suburbs and high vacancy rates in older office buildings are among the holes that need to be filled if downtown is to prosper as a place to work. But these and other forces affecting job creation will have to be the subject of a separate column.