Investor Market Brief: Sevier County 2025 Outlook

I wanted to share a high-level look at the Sevier County real estate market as we enter the back half of 2025. With strong tourism fundamentals, improving transaction velocity, and a steady pipeline of short-term rental (STR) and commercial opportunities, the Smokies remain one of the most attractive leisure-anchored markets in the Southeast.

Residential Market Snapshot (For Sale Homes)

• Median listing price: $645K (Aug 2025, –7.2% YoY)
  
  
• Median sold price: ~$484K (Redfin reports ~$508K in May)
  
  
• Time on market: ~68 days, down from 77 a year earlier (faster absorption)
  
  
• New supply: 1,441 residential building permits issued in 2024 (vs. 1,021 in 2023)
  
  
• Financing: 30-year fixed mortgage rates trending near ~6.3%, improving buyer math

Investor take: Pricing has normalized from 2022–23 peaks, but DOM is improving. With mortgage rates easing, 2025 should see stronger absorption, especially for turnkey STR-capable assets.

Short-Term Rental (STR) Market

• Tourism engine: Great Smoky Mountains National Park drew 12M+ visits in 2024, the most-visited U.S. park
  
  
• Visitor spend: $3.93B in Sevier County (+2.0% YoY)
  
  
• Occupancy: Gatlinburg averaged ~60–64% (Jun ’24–May ’25), peaking in July & October
  
  
• Lodging revenue: Pigeon Forge logged ~$476M in 2024, with hotel/cabin supply up ~4.9%
  
  
• Regulation: STRs in unincorporated Sevier County now require annual permits + inspections; Gatlinburg, Sevierville, and Pigeon Forge each have clear permitting frameworks
  
  
• Taxes: 3% county lodging tax (unincorporated), plus city add-ons (e.g., 2.5% + 1% in Pigeon Forge)

Tax Advantage: 100% Bonus Depreciation

One of the most compelling benefits of STR ownership right now is the 100% Bonus Depreciation tax law included in recent federal legislation.

Here’s how it works in plain terms:

• Eligible property improvements (like furniture, appliances, flooring, and certain renovations) can be depreciated 100% in year one rather than stretched out over many years.
  
  
• For high-income investors, this means you can use those paper losses to offset other active or passive income, often creating a substantial reduction in your federal tax bill.
  
  
• STRs qualify uniquely if you materially participate (i.e., self-manage or meet IRS standards), allowing you to apply the write-offs against W-2 or business income — a strategy not available with long-term rentals.
  
  

Investor take: For anyone paying significant taxes, purchasing a Smoky Mountain STR in 2025 is not just about cash flow and appreciation — it’s also a powerful tax shelter, turning depreciation into a front-loaded benefit.

Advanced Tax Strategy: Leveraging RC §469, Treas. Reg. §1.469-5T, and IRC §168(k)

Owning a short-term rental offers a unique tax planning opportunity when structured properly:

• RC §469 (Passive Activity Loss Rules): Normally, rental losses are considered passive and can only offset passive income. However, STRs (average stays under 7 days) are not treated as “rentals” under IRS rules — which means they can qualify as active businesses if you materially participate.
  
  
• Treas. Reg. §1.469-5T (Material Participation Tests): The IRS lays out seven ways to prove active participation (e.g., the 100-hour test, “substantially all participation,” or managing more than anyone else). Meeting one of these tests allows STR losses to be considered non-passive.
  
  
• IRC §168(k) (Bonus Depreciation): This section provides the actual mechanism for 100% first-year depreciation on qualifying property. When combined with material participation, it allows you to offset active income like W-2 wages, business income, or other high-taxed earnings.
  
  

Investor take: For high earners paying six figures or more in federal taxes each year, this trifecta of IRS code sections can generate six-figure paper losses in year one — all while still collecting STR cash flow and long-term appreciation.

Commercial Real Estate (CRE)

Hospitality & Experiential

• Pigeon Forge hotels produced ~$476M in lodging revenue in 2024; new branded flags (Compass by Margaritaville, Drury Plaza Hotel opening Aug 2025) highlight confidence in the market.
  
  
• Dollywood’s continued reinvestment (e.g., $50M “NightFlight Expedition” ride for 2026) drives fresh visitor catalysts.
  
  
• Exit 407 (Gateway to Adventure) entertainment district continues phased buildout, anchored by Buc-ee’s flagship.
  
  

Retail

• Knoxville/Sevier County retail vacancy sits near 4.9% overall (1.0% general retail) with just ~130k SF under construction — supply-constrained conditions.
  
  
• Positive absorption and healthy sales velocity (~$257M in retail trades over the past year) point to durable fundamentals.
  
  

Industrial & Flex

• I-40 corridor (Exit 407) supports tenants like FedEx Ground (~260k SF) and Parker Trutec expansions.
  
  
• While U.S. industrial vacancy has ticked up (~7%), slowing new supply should benefit Southeast corridors like Sevier County.
  
  

Taxes & Cap Rates

• CRE property in TN is assessed at 40% of appraised value; Sevier County tax rate is $1.48 per $100 assessed.
  
  
• Cap rates in the Knoxville MSA retail market sit in the mid-7s, attractive given limited speculative construction.
  
  
• Tennessee remains income-tax free, a consistent after-tax yield advantage.
  
  

Investor take: CRE here benefits from steady tourism-anchored demand, restrained new construction, and strategic location on I-40. Hospitality-adjacent retail pads, necessity retail, and service-industrial near Exit 407 all screen well.

Outlook for 2025–26

• Tourism: Demand remains durable, with 12M+ visitors annually.
  
  
• Residential: Pricing is normalizing, DOM improving, and mortgage rates trending downward.
  
  
• STR: Occupancy stabilizing, ADRs strong for premium amenity cabins, regulations clearer, and bonus depreciation + IRS participation rules unlock major tax offsets.
  
  
• CRE: Hospitality and retail show positive absorption; industrial/flex poised to benefit from slowing national supply.
  
  

Investor Positioning

1. Target amenity-rich STR assets (pools, theaters, game rooms) for premium ADRs and front-loaded tax benefits.
   
   
2. Leverage IRS Code (RC §469 + Treas. Reg. §1.469-5T + IRC §168(k)) to materially participate and offset high active income.
   
   
3. Look at CRE pads near hospitality anchors — QSR, coffee, entertainment retail by Dollywood, LeConte Center, and Exit 407.
   
   
4. Explore necessity retail & service-industrial where vacancy is low and construction limited.
   
   
5. Underwrite conservatively but lean into Tennessee’s tax advantages and the Smokies’ unmatched demand engine.

Summary 

Sevier County continues to offer a rare combination of high-velocity tourism demand, resilient STR economics, a CRE market with disciplined supply, and unique tax benefits. For investors seeking durable cash flow, appreciation upside, and significant first-year tax savings, it’s one of the Southeast’s most compelling plays. If you’re an active buyer in Sevier County, Knoxville, or the surrounding markets and want expert guidance in uncovering the best deals, call 865.806.4724 to schedule a personal consultation with Lucas Amet.

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