Nashville Industrial Market Update Q1 2018


National & Nashville Industrial Market

Nationally, industrial property, and particularly distribution warehousing, is in high demand.

As more retailers shift to serve online shoppers, same day / next day delivery is paramount.

That means retailers are adding more distribution warehousing in strategic hubs.

Strong income gains have also led to increased consumption.

And ecommerce has the numbers to show for it – a $452 billion industry that’s up 6.8% quarter over quarter and 16.2% year over year.

Online shopping has been the biggest gift the industrial market could’ve hoped for.


Investment Activity Slows

Sales are down nationwide.

But that’s not a product of decreased demand – quite the opposite.

Demand is high for industrial product but we’re seeing fewer owners willing to sell their property.

After all, rents have increased dramatically and vacancy rates are falling.

If you’re looking to build more commercial product, it’s tough to go wrong with logistics.


Absorption Rates Strong

As demand increases, vacancy rates will drop.

And we’re seeing this hold strong across the country.

Over 2.1 billion square feet of industrial product has been absorbed into the market since 2001.

The clear winner? Logistics.

This fact is unlikely to surprise most – ecommerce has been on the rise for years while manufacturing declines.


The Nashville Economy

Nashville’s economy is powerful.

Home ownership has declined 6% nationally, adding approximately 7.5 million renters to the market.

The Music City has certainly experienced this trend, too.

Our decline is consistently increasing and is now above the city’s historical average.

Decline in home ownership is good news for Nashville multifamily investors.


Job Growth

Since 2001, we’ve added 300,000 jobs to the MSA – from 700,000 to over 1,000,000 in just 17 years.

An increase of 43% and rising.

Although the price of living has significantly increased this cycle, it’s still affordable compared to other large metros.

In fact, we’re still outpacing Raleigh and Philadelphia in terms of household growth.

The city has been averaging about 4% annual jobs growth – due in part to strong millennial attraction.

Metro Nashville is 4th in the country for millennial attraction, only outpaced by DC, Charlotte, and Raleigh.

To put that jobs growth in perspective – that’s twice the national average and higher than Miami.

Nashville’s job growth is expected to slow down but remain positive.


Nashville Continues to Grow

As Nashville’s population creeps to 2 million, the city has reached an historic low of 2.4% unemployment.

24,000 jobs were added last year alone, with business services, logistics, and leisure / hospitality leading the pack.

The MSA is in the top 20 for household growth in the country and is experiencing nearly double the national average.

And we’re not seeing high demand in multifamily, alone.

Single family home development is also increasing across the metro.

But home affordability is pushing more renters into the market.

The median home price today is $250k, compared to $200k in 2011.

A 25% increase in only 6 years.

Where the Nashville Industrial Market Stands

Nashville is surprisingly on the lower end of the country for absorption.

We likely peaked in 2017, as we’ve witnessed a year over year decline in activity.

However, Nashville is #3 in the country for flex absorption – behind Dallas and New Orleans.

And not much flex product is being built.

In fact, almost none is under construction.

90% of Nashville’s new industrial construction activity is attributed to logistics.


Because Nashville is so well located within the country, providing ease for distribution.

While Nashville was also low in deliveries for Q1 2018, it was #6 in the country for “starts” (foundations poured) in new construction.


Industrial Rent Growth Strong

Across the board, industrial is outpacing other property types in terms of rent growth.

And it doesn’t matter if you have old or new industrial product.

Nashville was #1 for strongest industrial rent growth in the country!

To say the city is an emerging industrial hub is an understatement.

The Nashville industrial market trails only multi-family in terms of investment activity.


Industrial Fundamentals

There are three primary types of industrial, all three of which are experiencing strong demand in Nashville.

Absorption rates are down overall, but vacancy compression remains strong.



Comprised of distribution and warehousing properties.

Logistics space accounts for 144.9 million square feet – nearly 64% of all industrial space in the Greater Nashville Area.

Demand cooled off a bit in 18Q1 but still experienced vacancy compression.



A combination of office and warehousing space.

Flex accounts for 16.2 million square feet in Nashville – approximately 7% of the industrial market.

Demand is significantly higher than supply but not much flex is under construction or proposed in the Nashville market.



Largely manufacturing and all other types of industrial.

Specialty comprises 66.3 million square feet, or 29% of our industrial product.

Demand is increasing for this type of industrial with no supply really coming on the market.


Construction Activity

Nashville sits in the top 15 markets in the country for new supply built this cycle.

We’ve added nearly 10% to our total inventory.

Southeast Nashville and Wilson county have delivered almost all of that product.

Since 2017, 8 million and 6.5 million square feet, respectively, have been delivered in those regions.

And the kicker?

Nearly 90% of the space is already leased.

Because of this steady, strong demand, construction activity is picking up.

There is approximately 5 million square feet under construction in the Nashville MSA with nearly 50% preleased in Wilson County.


Industrial Investments

Annual sales activity in the Nashville MSA is growing.

Last year, nearly $1 billion worth of industrial properties were traded.

Prices have also more than doubled this cycle.

In 2010, average price per square foot was $35.00.


Now the Nashville industrial market is over $80.00 per square foot.

Most of the volume is trading in the Southeast region ($310 million, averaging $70.00 per square foot) with the most expensive site selling in the Southwest market at $340.00 per square foot.


Nashville Goes International

Canadian investment activity in Nashville picked up last year, as well, which I found interesting.

Foreign investment is certainly coming to Nashville – The Cauble Group is currently working with an Australian investor on multifamily and commercial investments.

Nashville’s strong growth has brought it to the international investment table – don’t miss out on your opportunity to invest in a rapidly growing industrial hub with strong demand and rent growth.

Interested in other types of commercial product? Take a look at our 18Q1 office report, multifamily report, retail report

Data courtesy of Costar.