Nashville Office Market Shows Strong First Quarter

At the end of the first quarter, the Nashville office market had a construction pipeline that was significantly above the national norm, as it outperformed many US metros. according to CommercialEdge data. However, the new development has lagged in terms of launches and shipments, lagging behind most of its peers. Investment volume increased significantly compared to the first three months of last year, but prices per square foot fell slightly.

AAC Nashville Yards
Nashville Yards is the largest project in the city’s history. Image courtesy of CAA

In terms of vacancy, Nashville fared better than most of its peers, as well as compared to the national figure, with occupancy increasing year over year. The coworking sector also showed a healthy performance, with metros having one of the largest shares of flexible office space in the US

One of the largest office pipelines

As of the end of March, the construction pipeline in Nashville’s office market totaled more than 3 million square feet across 11 properties, accounting for 4.5 percent of the stock. It significantly exceeded the national construction rate of 1.5 percent and outperformed many secondary markets such as Austin (3.9 percent), Charlotte (2.8 percent) and Atlanta (1.7 percent).

The largest project under construction in Nashville is Pinnacle Tower, a 650,000-square-foot building within the 19-acre Nashville Yards project. Upon completion, the $1 billion mixed-use campus is slated to include more than 3 million square feet of office space, along with significant residential, hospitality and retail components. Recently, Creative Artists Agency signed a lease for 75,000 square feet in another building on campus.

Sewart's Landing in Smyrna, Tenn., will have two medical office buildings, street-level retail, a 240-key hotel and 75 townhomes for sale.
Sewart’s Landing in Smyrna, Tenn., will feature two medical office buildings, street-level retail, a 240-key hotel and 75 townhomes for sale. Image courtesy of Equitable Property Co.

In the first quarter of 2024, only one property of 300,000 square meters broke ground. As for the deliveries, only one building also appeared online, comprising 32,000 square feet of office space within The Finery mixed-use project developed by Hines. In terms of gross volume brought to market, Nashville lagged behind most of its peers including Phoenix (107,865 square feet), Atlanta (180,240 square feet) and Austin (635,250 square feet).

Additionally, a joint venture of Equitable Property Co. and Chapman Capital is eyeing a mixed-use development planned to include two medical office buildings totaling 400,000 square feet, along with a large retail and hospitality component. The partners recently purchased the 44-acre site and plan to break ground in the first quarter of 2025.

Nashville office investment on the rise

Since the end of March, a total of 306,492 square feet changed hands in the Nashville office market in three sales for a transaction volume of about $63 million. These figures represent a significant increase in activity compared to the 67,513 square meters that traded for $15.3 million in the first quarter of 2023.

Boyle Investment Co.  has purchased the McEwen Building in Franklin, Tenn.
Boyle Investment Co. has purchased the McEwen Building in Franklin, Tenn. Image courtesy of Boyle Investment Co.

The price per square foot came in at $200.9, down 11 percent from the $225.9 recorded in the metro during the same period last year. Nashville was more expensive than many of its peers such as Atlanta ($110.6), Dallas ($141.3) and Phoenix ($187.3), but was significantly behind Austin’s $506.6.

The largest transaction recorded in the first quarter was the sale of the 175,000-square-foot McEwen Building in the Cool Springs submarket. Boyle Investment Co. paid $48.8 million, acquiring the asset from KBS. At the time of the sale, the building was 95 percent occupied, being leased to 15 office and retail properties.

Vacancies decrease in Nashville’s office market

The vacancy rate in Nashville’s office market reached 15.5 percent at the end of the first quarter, representing a year-over-year decline of 190 basis points. Vacancy was below the national figure of 18.2 percent, as the metro fared better than most of its peers such as Phoenix (18 percent), Dallas (21.7 percent), Austin (22 percent) and Denver (22.7 percent).

One of the biggest moves in the Nashville office market is the relocation of Austin-based software company Oracle’s headquarters. The company bought a 65-acre site in the metro in 2021, with plans to develop a $1.2 billion office campus and relocate 8,500 employees. In the meantime, the company will rent office space.

A big part of collaboration in Nashville

As of the end of March, there were 1.8 million square feet of office space in Nashville’s office market across 83 properties, accounting for 2.9 percent of the total stock. The share of flex space was well above the national rent of 1.8 percent, as it outpaced many other secondary markets such as Atlanta (2.1 percent), Denver (2.2 percent) and Raleigh-Durham (2.6 percent).

One of Regus’ largest flexible office space operators with approximately 188,250 square feet across 10 properties. WeWork also commanded a sizeable footprint of 151,000 square feet across 3 locations, followed by Spaces which has 128,000 square feet across 4 properties.

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Image Source : www.commercialsearch.com

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