The Chattanooga retail market remains fundamentally tight, with vacancy holding at a low 3.5% as of Q1 2026, essentially in line with its long-term equilibrium and unchanged from the 10-year average. While conditions remain stable, momentum has softened slightly over the past year, as modest new supply outpaced demand, resulting in negative net absorption of roughly 68,000 SF. Development activity has slowed significantly, with only 4,000 SF currently under construction compared to a much higher historical average, signaling a more cautious pipeline. On the pricing side, rent growth has moderated to 2.2% year over year, aligning closely with national trends but falling below the market’s stronger historical growth patterns. Overall, Chattanooga continues to exhibit stable fundamentals, though recent demand softness and slowing rent growth point to a more normalized phase following years of expansion.

 

Key Highlights

• Chattanooga’s retail market remains stable, with vacancy holding at 3.5%, in line with long-term averages, as limited new supply and steady demand continue to support balanced fundamentals.
• Rent growth has moderated to 2.2% year over year, with asking rents at $17.73/SF, signaling a shift toward more sustainable growth following several years of stronger gains.
• Investment activity remains steady, with $247 million in annual sales volume and pricing reaching $161/SF, while cap rates have held stable near 7.6%, reflecting aligned buyer and seller expectations.

 

Chattanooga Demographics

Source: CoStar Group, Inc.

• Unemployment Rate: 3.5%
• Current Population: 594,455
• Households: 243,348
• Median Household Income: $77,585

 

Rents

Asking rents in the Chattanooga retail market have trended upward over the past two years, reaching $17.73/SF in Q1 2026, up from $15.87/SF in Q1 2023. Growth has been steady but uneven, with a brief peak in mid-2025 followed by slight quarterly fluctuations. Despite this variability, the broader trajectory reflects continued pricing power, supported by limited vacancy and constrained new supply. More recently, rent gains have moderated, with incremental increases since late 2025, suggesting a transition toward more sustainable growth.

 

Market Asking Rent Per SF

Source: CoStar Group, Inc.

 

Vacancy

Vacancy in the Chattanooga retail market has remained relatively stable but has trended slightly upward over the past two years, reaching 3.5% in Q1 2026 compared to lower levels seen through much of 2023. The increase reflects some softening in demand, particularly through 2025, when vacancy peaked near 3.7% before stabilizing more recently. Despite this upward movement, overall vacancy remains low by historical standards, supported by limited new construction and steady tenant demand. Recent minimal change suggests the market is finding equilibrium.

 

Vacancy Rate

Source: CoStar Group, Inc.

 

Construction

Retail construction activity in Chattanooga has declined sharply from peak levels in 2023 and early 2024, signaling a significant pullback in new development. Space under construction totaled just 9,700 SF in Q1 2026, down from over 200,000 SF throughout much of 2023. This slowdown reflects a more cautious development environment amid moderating demand and rising costs. As a result, limited new supply is expected to help maintain stable fundamentals despite softer leasing activity.

 

SF Under Construction

Source: CoStar Group, Inc.

 

Sales

Investor activity in Chattanooga’s retail market remains broad-based, with a mix of private, regional, and institutional buyers actively deploying capital. Over the past year, leading investors each acquired between roughly $12 million and $41 million in assets, signaling consistent deal flow across a range of buyer profiles. Total sales volume reached $247 million, with quarterly activity stabilizing around $66 million following a late-2024 peak. Pricing has continued to trend upward, with average sale prices reaching $161/SF, while cap rates have remained stable near 7.6%. This combination of steady pricing and limited cap rate movement indicates that buyer and seller expectations remain aligned, supporting continued investment activity despite a more normalized transaction environment.

 

Sales Volume & Market Sale Price Per SF

Source: CoStar Group, Inc.

 

By the Numbers

Q1 2026 | Source: CoStar Group, Inc.

• Sales Volume: $66.5M
• Price Per SF: $161
• Cap Rate: 7.6%
• Vacancy Rate: 3.5%
• Rent Growth: 2.4%
• Asking Rent Per SF: $17.73
• SF Under Construction: 9.7K
• SF Delivered: 23K
• SF Absorbed: 15.2K