Nashville Office Market
Across the country, office product is beginning to stabilize.
Essentially – what’s being delivered is being leased.
We don’t have too much coming online that sits vacant for extended periods of time.
And Nashville is one of the leading markets in the country as far as absorption rates are concerned.
Because of the massive build-to-suit projects we’ve delivered in the past year like the new Bridgestone HQ.
Class A Office Space Dominating
Class A office space (new construction, state of the art product) is dominating the market.
While this is a result of some large build-to-suit deliveries, speculative construction has picked up.
Developing projects on spec is a sign of a strong market.
Developers are confident in their ability to lease up a project prior to delivery.
Build-to-suit developments take a while to pre-lease.
Most tenants in the Nashville market want to move in in 3-6 months, not 9-12.
Although spec construction is picking up, overall construction in the Nashville office market is slowing.
National Rent Growth Slows
Rent growth is slowing down across the country.
This doesn’t concern me, however, as rents are not going negative.
After all, it’s difficult to sustain the massive year over year growth we’ve experienced.
Sales volume is also down this year over last - approximately 8.7% nationally.
So, while we’re starting to see rent growth and sales volume trend downward, the office market is stabilizing and the outlook is strong.
AllianceBernstein Joins the Nashville Office Market
New York finance behemoth, AllianceBernstein, has announced their move to Nashville.
According to President and CEO, Seth Bernstein:
"Nashville emerged as the clear winner by every metric we analyzed: housing, education, cultural amenities, weather, cost of living, business friendliness, the ability to source the country's top talent, diversity and inclusion and more. No other city could compete."
The move will bring 1,050 jobs to Nashville – 5% of Vanderbilt’s total employment overnight.
At 150 to 200 sq. ft. per employee, the company will be searching for a 160,000 to 210,000 sq. ft. home.
Where will they land?
No one knows quite yet – they’re keeping it very under wraps.
But I wouldn’t be surprised if their new headquarters kicked off the River North Development.
And that’s massive news for the apartments that are struggling to lease up in the CBD.
Why a Nashville Office?
Some news publications have questioned why a New York giant would move to a relatively small Southern city.
Well, the proof is in the economics.
Compared to New York, Nashville is a bargain.
Average rent for a Nashville office is $25.00 per sq. ft. compared to New York’s $60 per sq. ft.
Cost of living for employees is much less:
$1,200 per month vs. $2,700 per month in rent
$250,000 median housing pricing vs. $655,000
Employees can make less and live richer
The move was a no brainer for AllianceBernstein, and I imagine they won’t be the last New Yorker to find it’s way to the Music City.
The Nashville Economy
Nashville’s economy is powerful.
Since 2001, we’ve added 300,000 jobs to the MSA – 700,000 to over 1,000,000 in 17 years.
That’s an increase of 43%!
Employment growth has been strongest in Nashville’s office market, which outpaced the country.
Nashville has been averaging about 4% annual jobs growth.
To put that 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
Even as Nashville’s population creeps to 2 million, the city has reached a 2.4% unemployment rate.
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.
2017 was a peak year for office development.
Nashville was in the top 10 metros for most office delivered and we had the biggest delivery year since 2007.
Vacancy rates are up over last year, but well below national and historic averages for the city.
The outlook is strong for the office market as vacancies are expected to stay inline with historic rates.
Office Development in Nashville
Nearly 1.4 million square feet was delivered in downtown last year.
Cool Springs was a distant second at 430,000 square feet delivered.
While development is slowing down, most of what’s being delivered is pre-leased.
As I stated earlier, developers are confident in their ability to lease these buildings up before they’re delivered – and they’re having no issue proving that.
Office Market Rents
Nashville’s office market rents peaked in 2016 at 8.7% annual growth.
We’re starting to see a much more stabilized 2% annual growth rate due to the massive amounts of deliveries that have satisfied market demand.
However, no submarkets are seeing negative rent growth – it all remains in the positive.
Rent growth has been strongest in the Class A space, while Classes B & C saw a sharp decline.
This anomaly is likely due to build-to-suit deliveries like Lifeway’s new HQ in Capitol View.
Prices are soaring in the Nashville MSA.
Since 2010, prices have doubled to a median $200 per square foot.
All asset classes seem to be selling equally with most of the investment being Downtown.
And we don’t see a slow down anytime soon in Nashville investments.
Data courtesy of CoStar.