Investing in Knoxville: Tennessee’s Most Underrated Real Estate Market

Knoxville, Tennessee has long been overshadowed by its larger Tennessee peers, but this dynamic city is fast emerging as the state’s most underrated commercial real estate market. While Nashville grabs headlines with booming growth and Memphis anchors logistics in the west, Knoxville offers a compelling blend of strategic location, economic stability, and untapped potential. For seasoned investors and CRE professionals, Knoxville presents an opportunity to capitalize on a market with strong fundamentals and less competition – a true hidden gem in the Southern real estate landscape.

Overshadowed No More: Knoxville vs. Nashville and Memphis

In Tennessee’s triad of major cities, Knoxville has often been the quiet achiever. Nashville’s meteoric rise in recent years brought national attention (and soaring property costs), while Memphis has long been known for its logistics prowess and cultural heritage. In contrast, Knoxville’s growth has been steady and under the radar – leading many to ask if Knoxville could be the next big thing in Tennessee real estate. The Knoxville metropolitan area, with roughly 900,000 people, is growing at a healthy pace but still offers a cost profile dramatically lower than Nashville’s. Commercial real estate in Knoxville remains more accessible, with higher cap rates and lower price points that allow investors to achieve better yields compared to the overheated Nashville market. Memphis, on the other hand, may offer high yields but comes with higher risks; Knoxville strikes a desirable balance of affordability, growth, and stability. It’s telling that national analyses have started recognizing Knoxville among top “undervalued” or “up-and-coming” markets for real estate. Simply put, Knoxville provides many of the advantages of a booming Sunbelt city – business-friendly climate, population inflows, vibrant culture – without the fierce competition and pricing of its larger neighbors. For a Brevitas executive eyeing strategic expansion, Knoxville today feels reminiscent of where Nashville was a decade ago: poised for a breakout.

Strategic Location and Logistics Corridors

One of Knoxville’s greatest advantages is geographic. Situated at the crossroads of three major interstates (I-40, I-75, and I-81), Knoxville lies within a one-day drive of about 70% of the U.S. market (ETEDA – Knox County Profile) . This prime location has made the area a logistics and distribution hub for the Southeast. Companies like Amazon and Pilot Flying J have major operations here, leveraging Knoxville’s connectivity to reach Atlanta, Charlotte, Nashville, and beyond with ease. The freight corridors also attract industrial developers looking to build warehouses and fulfillment centers that can serve a huge swath of the Eastern U.S. efficiently. Recent expansions underscore this momentum – for example, a Knoxville-based 3PL (third-party logistics) firm announced a headquarters expansion that will add over 650 jobs in the next few years (TNECD Press Release: Axle Logistics Expansion) . Likewise, the state has invested in infrastructure and incentives to support logistics growth, knowing that Knoxville’s highway network is a competitive asset. In short, Knoxville’s strategic location translates into real demand for industrial real estate – from trucking terminals to large-scale distribution centers – and positions the city as a key node in national supply chains.

Economic Drivers Fueling CRE Demand

Knoxville’s economic base is impressively diverse for a city its size, providing a solid foundation for commercial real estate demand. Several key drivers stand out:

• Major Research University (University of Tennessee): Knoxville is home to the University of Tennessee’s flagship campus, with over 28,000 students and extensive research activity. UT Knoxville not only supplies a steady pipeline of educated talent but also anchors demand for multifamily housing (student apartments), retail, and even office space tied to university partnerships and startups. The university’s presence lends stability and injects roughly a billion dollars annually into the local economy through salaries, student spending, and research funding.
• Oak Ridge National Laboratory (ORNL): Just a short drive outside Knoxville is ORNL, a world-renowned federal research lab. ORNL’s specialization in advanced materials, nuclear engineering, and energy attracts scientists and high-tech businesses to the region. Spin-off companies and suppliers often set up in the Knoxville-Oak Ridge Innovation Corridor, driving demand for specialized R&D facilities, flex industrial space, and even upscale housing for relocating professionals. The lab’s influence has helped Knoxville carve out a niche in technology and innovation within East Tennessee.
• Logistics & Manufacturing Hub: As noted, Knoxville’s convergence of interstates makes it a logistics powerhouse. Manufacturing firms appreciate the ease of shipping products nationwide, and distribution companies find Knoxville ideal for regional centers. The city’s workforce has a strong background in manufacturing and distribution, and industrial vacancy rates are famously low (often in the single digits), indicating that supply is struggling to keep up with demand. New industrial parks and warehouse developments are springing up on Knoxville’s periphery, fueled by e-commerce growth and companies seeking lower-cost alternatives to larger metro areas.
• Healthcare and Life Sciences: Knoxville boasts a robust healthcare sector, with six major hospitals in Knox County (ETEDA – Knox County Profile) and a growing array of specialty clinics and medical research facilities. Flagship institutions like the University of Tennessee Medical Center and East Tennessee Children’s Hospital have expanded in recent years, spurring construction of new medical office buildings and research labs. Additionally, Knoxville’s attractiveness to retirees (thanks to a mild climate and low cost of living) is expanding the senior living and healthcare real estate segments. For investors, this means opportunities in medical office, biotech incubators, and senior housing developments are on the rise.
• Corporate and Government Presence: Knoxville quietly hosts several corporate headquarters and regional offices that bolster the local economy. These include Regal Cinemas (one of the nation’s largest movie theater chains), Discovery, Inc.’s HGTV and Food Network operations, Pilot Company (Pilot Flying J) in the energy retail sector, and Tennessee Valley Authority (TVA), the federal utility whose headquarters is in downtown Knoxville. Such entities occupy significant office space and employ thousands of professionals. Their commitment to Knoxville signals confidence in the market and provides a stable demand for commercial space – from downtown office towers to suburban campuses. Moreover, federal facilities like TVA and ORNL mean a stream of government investment and a cushion against economic downturns.

Economic Drivers Fueling CRE Demand

Knoxville’s economic base is impressively diverse for a city its size, providing a solid foundation for commercial real estate demand. Several key drivers stand out:

• Major Research University (University of Tennessee): Knoxville is home to the University of Tennessee’s flagship campus, with over 28,000 students and extensive research activity. UT Knoxville not only supplies a steady pipeline of educated talent but also anchors demand for multifamily housing (student apartments), retail, and even office space tied to university partnerships and startups. The university’s presence lends stability and injects roughly a billion dollars annually into the local economy through salaries, student spending, and research funding.
• Oak Ridge National Laboratory (ORNL): Just a short drive outside Knoxville is ORNL, a world-renowned federal research lab. ORNL’s specialization in advanced materials, nuclear engineering, and energy attracts scientists and high-tech businesses to the region. Spin-off companies and suppliers often set up in the Knoxville-Oak Ridge Innovation Corridor, driving demand for specialized R&D facilities, flex industrial space, and even upscale housing for relocating professionals. The lab’s influence has helped Knoxville carve out a niche in technology and innovation within East Tennessee.
• Logistics & Manufacturing Hub: As noted, Knoxville’s convergence of interstates makes it a logistics powerhouse. Manufacturing firms appreciate the ease of shipping products nationwide, and distribution companies find Knoxville ideal for regional centers. The city’s workforce has a strong background in manufacturing and distribution, and industrial vacancy rates are famously low (often in the single digits), indicating that supply is struggling to keep up with demand. New industrial parks and warehouse developments are springing up on Knoxville’s periphery, fueled by e-commerce growth and companies seeking lower-cost alternatives to larger metro areas.
• Healthcare and Life Sciences: Knoxville boasts a robust healthcare sector, with six major hospitals in Knox County (ETEDA – Knox County Profile) and a growing array of specialty clinics and medical research facilities. Flagship institutions like the University of Tennessee Medical Center and East Tennessee Children’s Hospital have expanded in recent years, spurring construction of new medical office buildings and research labs. Additionally, Knoxville’s attractiveness to retirees (thanks to a mild climate and low cost of living) is expanding the senior living and healthcare real estate segments. For investors, this means opportunities in medical office, biotech incubators, and senior housing developments are on the rise.
• Corporate and Government Presence: Knoxville quietly hosts several corporate headquarters and regional offices that bolster the local economy. These include Regal Cinemas (one of the nation’s largest movie theater chains), Discovery, Inc.’s HGTV and Food Network operations, Pilot Company (Pilot Flying J) in the energy retail sector, and Tennessee Valley Authority (TVA), the federal utility whose headquarters is in downtown Knoxville. Such entities occupy significant office space and employ thousands of professionals. Their commitment to Knoxville signals confidence in the market and provides a stable demand for commercial space – from downtown office towers to suburban campuses. Moreover, federal facilities like TVA and ORNL mean a stream of government investment and a cushion against economic downturns.

Diverse Commercial Real Estate Opportunities

Industrial: Strong Demand and Development Potential

Perhaps no sector illustrates Knoxville’s CRE strength better than industrial. The industrial market in Knoxville is exceptionally tight – with vacancy rates often among the lowest in the nation (hovering around 2% in recent reports). Space is at such a premium that developers are racing to deliver new warehouses, distribution centers, and flex industrial buildings. Knoxville’s industrial appeal comes from its aforementioned logistics advantages and moderate business costs. Major industrial tenants include automotive suppliers, building materials manufacturers, food processing companies, and e-commerce distribution centers. The pipeline for new industrial projects is robust, yet much of the new space is pre-leased before the concrete is dry. For investors, Knoxville’s industrial properties offer reliable occupancy and steady rent growth. There is also upside in redevelopment: older industrial sites near the city core are being repurposed into modern logistics facilities or even trendy mixed-use hubs (in cases where industrial use has waned). Overall, the industrial sector’s performance in Knoxville has put the city on the radar of national REITs and institutional buyers seeking growth markets beyond the primary metros.

Multifamily: Steady In-Migration and Rental Demand

On the multifamily front, Knoxville shines as well. The city has experienced consistent population growth driven by a combination of factors: job opportunities, the presence of UT (and its influx of students and young professionals), and an appealing quality of life that draws remote workers and retirees alike. This translates to healthy demand for apartments and other rental housing. In fact, Knoxville was recently ranked #5 on a national list of emerging multifamily markets for 2025 (Multi-Housing News – Emerging Multifamily Markets 2025) , thanks to above-average job growth and high occupancy rates. As of late 2024, occupancy in stabilized multifamily properties was around 96%, even with a surge of new units coming online – a testament to how quickly the market is absorbing new housing. Rents have been climbing modestly year-over-year, yet Knoxville remains more affordable than the national average, which suggests room for further growth. Importantly for investors, cap rates in Knoxville multifamily tend to be higher than in Nashville or Charlotte, meaning acquisitions can yield better cash flow. The multifamily sector spans everything from student housing near UT, to luxury lofts downtown, to garden-style complexes in the suburbs. Each sub-market has its own drivers: students guarantee leasing near campus, young professionals and empty-nesters are energizing downtown’s residential revival, and suburban apartments benefit from families and individuals seeking more space. For those considering new development, Knoxville’s permitting process and community reception to multifamily have historically been reasonable (especially compared to high-barrier coastal markets), though developers should still carefully navigate local concerns and ensure projects fit the neighborhood context.

Office: Resilience Amid Headwinds

Nationally, the office sector has faced challenges in the wake of remote work trends, and Knoxville is not completely immune. However, Knoxville’s office market has proven relatively resilient and is outpacing many peer cities in the region. Current office vacancy in Knoxville sits in the low-to-mid teens (around 13% as of 2025), which is significantly better than regional averages in the Southeast that have climbed above 20%. A few factors explain this relative strength. First, Knoxville’s office user base is diversified – it’s not dominated by a single beleaguered sector like tech or finance. Instead, tenants range from government agencies (TVA and related contractors), to engineering and architecture firms, to back-office operations for corporations, to healthcare administration and university-related offices. Second, Knoxville never experienced the overbuilding of flashy office towers that some boom towns did; the new supply has been measured, and much of it built-to-suit for anchor occupants. Third, many local businesses have been returning to in-person work, at least in hybrid form, given Knoxville’s less frenetic commuting patterns and ample parking (a far cry from the congestion of bigger cities). The result is that office deals are still being done – including some out-of-state companies relocating satellite offices to Knoxville to save on costs. We’re also seeing creative adaptations: older office buildings downtown are being renovated into modern collaborative spaces, and suburban office parks are adding amenities to entice workers back. While rent growth in office is flat to modest, landlords report stable leasing activity, especially for small-to-medium suites. From an investment standpoint, Knoxville office properties can be acquired at yields that price in a fair amount of pandemic-era risk, suggesting there’s upside as the market normalizes. Investors with a strategic view on office repositioning may find Knoxville a favorable hunting ground, given the city’s stable employment base and lack of oversupply.

Retail: Reinvention and Mixed-Use Momentum

Retail real estate in Knoxville is in a period of reinvention. Like many American cities, Knoxville has seen shifts in retail patterns – older shopping centers have grappled with vacancies (the metro’s retail vacancy rate recently hovered around 20%), and consumer habits continue to evolve. Yet, this sector is far from grim; in fact, it presents some of the most interesting opportunities in Knoxville’s CRE landscape. Key retail corridors in West Knoxville, such as the Turkey Creek development in Farragut, continue to thrive and draw shoppers from a multi-county region with big-box stores, dining, and entertainment. These established retail nodes benefit from strong demographics and traffic counts. Meanwhile, closer to downtown and campus, experiential retail is on the rise: think boutique shops, breweries, local eateries, and music venues that cater to both the college crowd and young professionals. Knoxville’s vibrant arts and culture scene supports many of these local retailers. Additionally, many underperforming retail properties are being eyed for redevelopment. We’re seeing investors repurpose strip malls into mixed-use centers with a combination of retail, medical offices, and residential units. An example is Knoxville’s downtown and adjacent areas, where formerly quiet blocks are now bustling with new apartments above ground-floor restaurants and shops. The city has even encouraged this trend through zoning that supports higher-density mixed-use projects in targeted corridors. Retail follows rooftops, and as Knoxville adds residents, retail demand – especially for services, grocery, and dining – is growing accordingly. Smart investors recognize that while e-commerce has trimmed the sails of traditional retail, Knoxville’s communities still value brick-and-mortar establishments as communal gathering spots. The next wave of retail in Knoxville will be more about experience and convenience, and less about pure square footage – making it an exciting space to watch (and invest in) as it transforms.

Emerging Neighborhoods and Development Hotspots

A city’s underrated status often means certain neighborhoods are on the cusp of breaking out. In Knoxville, several districts and corridors have attracted attention for new development and rising property values. Here are a few hotspots:

• Downtown & Old City: Knoxville’s downtown has undergone a renaissance. The once-sleepy city center is now teeming with new life thanks to renovated historic buildings, an influx of residents, and a burgeoning food and entertainment scene. Market Square and Gay Street have become vibrant anchors with restaurants, galleries, and shops. The nearby Old City, a historic warehouse district, has turned into a nightlife and arts hub. A catalyst for even greater change is the planned multi-use stadium for the minor league Smokies baseball team on the edge of downtown. This $100+ million project (opening for the 2025 season) is expected to ignite development in East Knoxville, creating thousands of jobs and attracting new businesses (WVLT – Downtown Stadium Economic Impact) . City leaders anticipate over the next 30 years this stadium district will spur hotels, apartments, and retail in an area that hasn’t seen major investment in decades. Notably, much of downtown Knoxville lies within federally designated Opportunity Zones, offering tax incentives that many developers are leveraging for projects like the stadium and surrounding mixed-use proposals.
• South Knoxville & Waterfront: Just across the Tennessee River from downtown, South Knoxville (affectionately “SoKno”) has become a focal point for new development. The City of Knoxville launched a 20-year South Waterfront redevelopment plan, and we’re now seeing the results: millions of dollars of public and private investment flowing into a three-mile stretch along the river (WVLT News – South Waterfront Plans) . New multifamily projects, condos, and townhomes have risen to take advantage of river views. A planned pedestrian bridge will connect South Knoxville directly to UT’s campus, enhancing access and likely boosting property values on the south shore. The area already boasts Knoxville’s Urban Wilderness (a vast network of trails and parks) which has spawned breweries, outdoor outfitters, and eclectic eateries catering to adventure-seekers. South Knoxville’s housing is in high demand, and commercial developers are following suit with proposals for mixed-use complexes that offer ground-floor retail and office space for local businesses. This neighborhood’s transformation is still in early innings, making it ripe for strategic investment now.
• West Knoxville and Farragut: West Knoxville, including the town of Farragut and areas along Kingston Pike, has long been the region’s most affluent suburban corridor. It continues to see robust growth in both residential and commercial development. Upscale subdivisions and master-planned communities are expanding the housing stock for professionals and families. Correspondingly, office and retail follow – Class A office parks have sprung up in areas like Pellissippi Parkway corridor and Hardin Valley to serve corporate and tech firms that want easy interstate access and proximity to executive housing. Retail is anchored by major centers like Turkey Creek, but even beyond, you’ll find new grocery-anchored shopping plazas and dining clusters wherever rooftops multiply. For investors, West Knoxville offers stability and strong demographics (high incomes, good schools) that underpin demand for everything from medical offices to self-storage. Land costs are higher here than elsewhere in Knoxville, but so are rents and spending power. Notably, some investors are targeting older strip malls in this area for repositioning – given the desirability of the location, a well-conceived redevelopment can unlock significant value.
• Innovation Valley (Oak Ridge & Hardin Valley): The corridor between Knoxville and Oak Ridge – sometimes marketed as the Innovation Valley – is another hotspot to watch. With ORNL and the Y-12 National Security Complex driving technology and defense activities in Oak Ridge, the adjacent areas in west Knox County (such as Hardin Valley) are attracting high-tech companies and startups. Knox County’s economic development strategy has emphasized creating research parks and innovation centers to link UT and ORNL research with private enterprise. One example is the Pellissippi Place business park, which has landed R&D firms and advanced manufacturing operations. As these sites fill up, demand grows for ancillary development – hotels for visiting scientists, quality housing for employees, and retail to serve new office parks. The state recently awarded grants (including a special Nuclear Energy Fund) to spur companies to set up R&D operations in this region, leading to projects like a $223 million fusion energy headquarters relocation that will bring 300+ jobs (TNECD – Type One Energy Announcement) . For CRE investors, the Innovation Valley represents a chance to get in on the ground floor of a growing tech-driven submarket, through investments in flex space, lab facilities, or even build-to-suit opportunities for expanding firms.

Investor-Friendly Climate and Incentives

Beyond the bricks and mortar, Knoxville offers a business climate that is highly attractive to investors and companies alike. Tennessee as a state is known for its pro-business policies – there is no state income tax on wages, relatively low business taxes, and a right-to-work legal framework. Knoxville exemplifies these advantages and adds a few of its own. The local government and Chamber of Commerce actively court investment through various incentives. Developers can tap programs like PILOT (payment-in-lieu-of-taxes) agreements for significant projects that create jobs, which effectively reduce property tax burdens during the early years of a project’s life. The city has also shown willingness to create TIF (Tax Increment Financing) districts to support infrastructure for redevelopment in blighted areas. One of the most talked-about incentives in recent years are Opportunity Zones – Knoxville has several designated Opportunity Zone tracts (including parts of downtown, East Knoxville, and the Burlington area) where investors can realize substantial tax benefits for funding long-term development. This has already catalyzed projects that might not have been financially feasible otherwise, by unlocking new equity eager for those tax advantages.

Financing for deals in Knoxville remains reasonably accessible. Regional and community banks are well-capitalized and understand the local market’s strength, often offering favorable terms for viable commercial projects. Unlike some hot coastal markets, where lenders have pulled back due to overheated pricing, Knoxville’s deal profiles (sensible prices relative to rents) make it easier to underwrite loans. Additionally, national lenders and CMBS loans are increasingly open to Knoxville assets as the city’s profile rises. On the equity side, we see a healthy mix of local investors and out-of-state capital. Notably, more 1031 exchange buyers from high-cost states are rotating proceeds into Knoxville properties, drawn by the higher cap rates and growth potential. Private equity real estate funds and family offices have also started circling, especially in multifamily and industrial acquisitions. This influx of new capital is still in the early stages – meaning those who move now can secure assets at pricing that likely offers upside as more buyers enter the market.

Capital Markets Perspective: Yields and Strategies

From a capital markets standpoint, Knoxville currently offers a compelling relative value play. Cap rates in Knoxville’s commercial sectors are generally higher than in primary markets (and even some secondary markets like Nashville), reflecting a bit of a risk premium that may not fully account for Knoxville’s positive trajectory. For example, well-located multifamily assets in Knoxville might trade at cap rates in the high-5% to mid-6% range, whereas similar properties in Nashville might be sub-5%. That spread is attracting astute investors who recognize that as Knoxville’s story gains national attention, cap rates could compress, yielding significant appreciation for early entrants. The same goes for office and retail – investors can purchase at attractive going-in yields and potentially refinance or exit at lower cap rates after the market further matures.

In terms of strategy, value-add investing is particularly viable in Knoxville. There are many properties across asset classes that are a bit outdated but well-located; these can be acquired and renovated or repositioned to tap into unmet demand. We’ve seen value-add success stories like older apartment complexes being upgraded to boost rents, and aging strip malls repositioned with fresh tenant mixes (think adding popular local eateries or services that draw consistent traffic). Another strategy gaining momentum is adaptive reuse – taking unique older structures (a historic warehouse, an old factory, even an old office building) and converting them to new uses. Knoxville’s rich history provides some great brick-and-beam canvas for creative developers, and the city has been cooperative in zoning flexibility when a reuse project will revitalize a property.

For more passive investors or institutions, core-plus opportunities exist in Knoxville as well. Assets with strong existing cash flow – like a fully leased industrial portfolio or a grocery-anchored shopping center – can provide stable returns with the bonus of being in a market with upside. Those returns, when compared to similar assets in overheated metros, are very attractive on a risk-adjusted basis. It’s not surprising that some national REITs have begun acquiring in Knoxville or that large brokerage houses are upping their research coverage of the market.

One cannot overlook development as a strategy either. Knoxville’s current supply-demand dynamics (e.g., industrial space shortage, housing undersupply) suggest that ground-up development, when carefully executed, can yield healthy profits. Construction costs in East Tennessee are moderate, and land is still available at prices that make development feasible (particularly in suburban greenfield sites or through assembling parcels in emerging urban areas). Of course, developers must account for rising interest rates and construction financing conditions, but local banks have shown willingness to back experienced developers, especially for in-demand product types.

Knoxville’s Potential

In summary, Knoxville is no longer just a college town or a stop on the way to the Smoky Mountains – it’s a burgeoning commercial real estate market in its own right, with the numbers and momentum to prove it. The city’s unique mix of economic drivers (education, research, logistics, healthcare) provides a sturdy foundation that many flashier markets lack. Its quality of life, from outdoor recreation to cultural festivals, helps attract and retain a talented workforce, which in turn draws employers and investors. And critically, Knoxville still offers *value* – an increasingly rare word in today’s CRE landscape. Investors who are ahead of the curve are recognizing that Knoxville’s “underrated” status won’t last forever. As an executive fluent in capital markets and strategy, you understand that real estate plays are often won by getting in early, before the broader market wakes up. Knoxville today presents that kind of opportunity. It’s a market where you can still buy low and watch growth raise all ships – where smart capital can make outsized returns by betting on a city with fundamentals that far outstrip its current reputation.

For those looking to diversify or reposition portfolios into high-growth, lower-competition arenas, Knoxville should be high on the list. The groundwork has been laid: infrastructure is strong, stakeholders are pro-development, and key industries are expanding. Over the next decade, we can expect Knoxville to climb rankings and perhaps even challenge its neighbors as a premier investment destination in the South. In the meantime, the savvy investor will treat Knoxville not as a secondary afterthought, but as a primary opportunity – one where strategic vision and due diligence today can unlock impressive gains tomorrow.

References

• East Tennessee Economic Development Agency – Knox County Profile
• Tennessee ECD Press Release – Axle Logistics Expansion in Knoxville (2023)
• Tennessee ECD Press Release – Type One Energy Headquarters Announcement (2024)
• Multi-Housing News – Top 10 Emerging Multifamily Markets 2025
• WVLT News – Knoxville South Waterfront Revitalization Plans (2025)
• WVLT News – Downtown Smokies Stadium to Bring Economic Boom (2023)