Nashville’s Commercial Real Estate Market Is Booming

To say Nashville is a red-hot city at the moment might be something of an understatement. Consider the following:

All of this growth has led to a strong economy and continually expanding business community. That, in turn, has led to a surging commercial real estate market.

Named One of the Nation’s Top Real Estate Markets to Watch

Last year, Nashville was ranked seventh on the list of the nation’s top commercial real estate markets to watch in 2016 by the Emerging Trends in Real Estate report from PricewaterhouseCoopers and the Urban Land Institute.

That report states: “Nashville is a market that has been mentioned numerous times in interviews over the past three years, and this year survey respondents have moved the market up significantly in terms of perceived attractiveness.”

What makes Nashville such a draw when it comes to commercial real estate? Here are a few key factors:

  • Fast-growing demographics
  • Concentrations in desirable industries
  • Growing urban centers
  • Good in-migration (specifically among desired workers)
  • Attractive quality of life
  • Lower cost of doing business

Basically, the secret is out about Nashville. Businesses, investors, and developers have discovered the opportunities the city offers, and they want in.

The Current State of Commercial Real Estate in Nashville

With a growing and thriving business community, Nashville is seeing increasing demand for commercial real estate.

According to Nashville Office Market Report from Colliers International:

“Nashville’s office market is firing on all cylinders, and the technology and healthcare sectors helped fuel this momentum throughout 2015 and will continue to do so in 2016.”

Here are a few current trends in Nashville commercial real estate as noted by Colliers International and JLL Tennessee:

Vacancies are down

Only 5 percent of Nashville office space is currently vacant. That means overall commercial property in Nashville is 95 percent occupied. Warehouse and distribution space is just as sparse, with 4.6 percent vacancy.

Class A office space (in a high quality building and central location) is highly coveted and hard to come by in Nashville, specifically in the 20,000-50,000 square foot range. The Class A vacancy rate for the Nashville market at the end of last year was 4.4 percent—down from 6 percent a year ago.

Some of the buildings that experienced the largest commercial occupancy gains last year were One Franklin Park, UBS Tower, Financial Plaza, and Gulch Crossing, which saw a combined 692,726 square feet of new occupancy in 2015.

Rent is way up (so are sale prices)

JLL notes that Nashville’s commercial office space rent growth is the third highest in the world. (That stat comes from the March 2016 Prologis Logistics Rent Index).

From 2015 to 2016, rental rates in the Nashville commercial market increased a whopping 25 percent. Colliers notes that, “Asking rental rates in the Nashville market are at record-high levels and will continue to increase, as vacancy remained low and competition for space intensified throughout 2015.”

And it’s not just downtown Nashville where space is at a premium, rental rates for commercial properties in areas like Cool Springs and Brentwood have also risen significantly.

Along with rental rates, sales prices on commercial real estate have also gone up. Just three years after it was purchased for $63 million in 2013, Airpark Business Center sold for $87 million this past May. And the 114,038-square-foot office building at 330 Commerce St. which was purchased for $11.2 million in 2013, just recently sold for $17.3 million.

Commercial construction is on the rise 

With limited vacancy and increasing demand for office space, new construction of commercial property in Nashville is increasing. JLL says that “new construction is on track to grow the market’s total inventory by 2.8 percent”.

Colliers paints a more vivid picture of the added commercial real estate coming soon to the city, saying: “Nashville’s downtown skyline will see dramatic change in the next few years with construction on 1,718,000 square feet of Class A office space in the urban core underway and set for delivery within 18-24 months.”

A couple examples of the new commercial properties we’ve seen emerge recently: The ONEC1TY development in Midtown continues to expand and make room for companies like Microsoft; and the Capital View development in the North Gulch plans to add a 10-story, 300,000-square-foot Class A office building in the near future.

A Strong Market That Will Only Continue to Grow

Nashville commercial real estate is thriving and growing like never before. Fueled by the popularity of the city, its expanding business community and attractiveness to developers, you can expect Nashville commercial property to remain a hot commodity over the next few years.