Chattanooga's revived downtown may be about to meet one of its biggest hurdles in more than a decade. Downtown is facing a glut of empty office space as BlueCross BlueShield of Tennessee brings together its local work force, now dispersed among various buildings, at a new headquarters on Cameron Hill.
While no one knocks the insurer's big move, the planned shift is creating uncertainty among some office tenants. It's also spurring a full-fledged planning effort by central city economic developers.
Bill Raines, president of commercial real estate firm the Raines Group, said the Chattanooga area office vacancy rate of 11.6 percent at the end of the third quarter could jump to the high teens without good planning.
"This is a smoke alarm going off," he said. "It takes a long lead time to market (properties). It's going to be on us very quickly. There does need to be a strategy."
Mr. Raines said data since 2002 show the Chattanooga area is slow to absorb new office space compared to other cities such as Nashville. While the Chattanooga area gained only a net 39,000 square feet of offices the past 3 1/2 years, the Nashville area absorbed 651,000 square feet in the first nine months of 2006, Mr. Raines said.
In addition, another major downtown office holder, the Tennessee Valley Authority, is mulling a move of its own.
TVA officials want to cut the amount and rate that the agency is paying to house its 2,600 Chattanooga workers. TVA expects to make a decision in early 2007 whether to stay in its 1.1 million-square-foot building, relocate elsewhere downtown or move into another office complex in the area.
"I envision it being difficult at times," said David DeVaney of Charter Real Estate Corp. about the amount of potential vacant office space. "It's going to affect the market."
PLANNING SOLUTIONS Paul Brock, who heads the nonprofit downtown redevelopment group RiverCity Co., said his group is working on a plan to help fill the more than 400,000 square feet BlueCross will empty in five downtown buildings.
"We've got a draft of the plan. It needs refinement. We hope to unveil the plan in early 2007," he said.
Mr. Brock said the plan will contain different goals and strategies to add vitality and growth in the central business district.
"The plan will help us focus efforts in specific target industries," he said.
Mr. Brock said one aim is to go after young, creative entrepreneurs age 25 to 44.
"That's prime talent. We want to bring those folks to town," he said, noting many in that segment look at a city's cultural amenities first and workplace second.
The RiverCity official said Chattanooga's quality of life, outdoors and the absence of bigcity crime and traffic help make downtown attractive.
"We want to do more marketing to accelerate the news about Chattanooga," he said.
The BlueCross project, at $299 million, is believed to be the biggest office investment ever in the city. The 950,000-square-foot corporate office will house BlueCross employees now scattered in 10 buildings across Chattanooga, according to the insurer.
Bob Worthington, a BlueCross senior vice president, said an expected move-in date is the first quarter of 2009. By mid-2009, all of the company's more than 3,500 workers slated to move will be relocated.
Mr. Worthington said BlueCross officials also are concerned about downtown office space as the agency owns 400,000 square feet and occupies 600,000.
He said that in each of its buildings, the insurer has done some work about how the facilities could be reused in the best possible way, ranging from top-quality office space to residential.
"As of today, nothing is sealed about reuse. It's foremost on our minds," Mr. Worthington said.
REMAKING DOWNTOWN More than a decade ago, the Tennessee Aquarium's opening helped spur the revival of downtown. Some see the availability of so much office space as a new chance to take the central city to the next level.
Mike McGauley, president of Fidelity Trust Co. downtown, thinks the opening up of new space is healthy for the central city.
"It's a sizable block of space. We could attract more regional headquarters (of companies)," he said. "The health of the heart of the city is critical."
Mr. McGauley said the University of Tennessee at Chattanooga could become more of a player in the city's core.
"It could end up occupying a nice portion of the space," he said.
Mr. DeVaney said the BlueCross move is "a great opportunity to mold Chattanooga into a live-work type of downtown."
He believes that some of the BlueCross space will turn into apartments or condominiums.
"Some may go retail," Mr. DeVaney said.
In addition to marketing, downtown will need to improve its parking and retail mix, he said.
"What retail component is missing from the downtown picture?" Mr. DeVaney asked.
A recent report done in connection with RiverCity's planning efforts identified grocery and clothing stores as the retail businesses residents most want downtown.
The report by Texas-based firm AngelouEconomics also cited a need for more parking, expanded public transportation and a better mix of housing.
Local respondents to a survey said the kinds of businesses they would most like to see downtown include software development and professional services firms, according to the report.
Mr. Raines said that, from the standpoint of potential empty buildings, the office space is a community problem.
"We need to put our collective creative juices together," he said. "I see opportunities if we collectively work together."