| ACTIVE NASHVILLE MARKET REMAINS HEALTHY
With a favorable tax structure and a desirable quality of life, Nashville
has become an ideal place to live and work for many people. The city is
within 600 miles of half of the population of the United States, so it's
also a great distribution point. In addition, the city government is a
pro-business government and is active in its recruitment process for businesses.
Real estate professionals are finding Nashville a profitable area to
locate. The industrial, office and retail sectors have remained strong,
and the outlook calls for more of the same.
The Nashville industrial market continued to grow at a healthy
rate during 2000 as the overall vacancy rate for the Nashville industrial
market stood at 3.6 percent at year-end, which was a slight decrease from
3.8 percent posted in the third quarter. Occupancy levels increased by
nearly 600,000 in the Nashville MSA over the last three months, which
brought year-to-date net absorption to 2.8 million square feet. This represents
only a small decrease from the 3.1 million square feet recorded during
1999. Nevertheless, net absorption levels over the last five years have
averaged 2.4 million square feet per year, indicating market activity
remains strong throughout the Middle Tennessee region.
in the Nashville MSA heated up in 2000 as over 3.4 million square feet
of new construction was completed - a 30 percent increase over last year's
construction totals. Much as it did in 1999, the majority of both leasing
and construction activity occurred in bulk buildings. Developers in the
local market include First Industrial, a regional REIT based out of Chicago;
Panattoni Development, a national developer headquartered in Sacramento,
California; Fort Lauderdale, Florida-based Stiles Corporation; and local
developers such as Bill Knestrick and Ozburn-Hessey Development.
Realty Corporation of Indianapolis owns, leases and manages approximately
5 million square feet of industrial and office facilities in the Nashville
area. The company recently acquired a 178-acre tract of land within 1
mile of the airport, which Duke-Weeks plans to develop into 1.5 million-square-foot
"In Cool Springs we control a large portion of the industrial
market and a large portion of the service center flex market," says John
Nelly Jr., managing director of Duke-Weeks' Nashville group. "There we
have a 46-acre tract, and we're looking to develop build-to-suits for
businesses that want a two-story office building combined with a distribution
facility that's in the range of about 280,000 square feet."
and Middle Tennessee continue to garner a lot of attention from companies
across the country due to Nashville's continued emergence as a super regional
distribution hub. In addition to being known for its quality of life,
Nashville is located within 600 miles of 50 percent of the U.S. population.
This has given the area tremendous appeal among large companies looking
to relocate or establish large regional distribution hubs here. Nashville's
convenient accessibility to three major interstates also serves as one
of its key attributes. A significant amount of activity generated in the
market over the last two years has been by companies that have located
their distribution hubs in the Nashville area. Logisco Inc., a third-party
logistics firm, signed the largest industrial lease of the year with 500,000
square feet of Class A distribution space in Smyrna's SouthPark.
market really has begun to take off over the last year due to the entry
of Dell Computer Corporation into Wilson County. Dell's presence in that
area has begun to have a tremendous ripple effect on the rest of the county
as its suppliers have begun taking up space throughout the market in order
to support Dell's operations. IEC Logistics Inc. leased a 403,000-square-foot
cross-docked bulk distribution building in Lebanon's Eastgate Business
Park. The asking rate for the new spec projects in Wilson County range
from $3.25 to $3.50 net.
The Nashville industrial market should continue
to see healthy construction and leasing activity throughout 2001. Rental
rates could feel a little downward pressure as landlords compete for some
of the larger users looking in the marketplace. The Southeast market area
should continue to see a large percentage of activity in the market as
well as receive most of the new construction. The East market area should
also see a lot more tenant activity, primarily around Eastgate Business
Park. There are still a number of users actively looking for space in
the market and a number of large tenants who have yet to occupy their
new buildings, which should help maintain strong occupancy growth well
into next year.
Nashville experienced a fairly active investment
market during 2000 on both the office and industrial fronts. This activity
should continue into 2001 as there a number of major buildings under contract
or for sale.
Investment capital for office was most evident in the West
End submarket. As previously mentioned, One and Two American Center sold
for $71 million and 3310 West End sold for $12 million. There were also
two major purchases by Harbor Group of Norfolk, Virginia: the 256,000-square-foot
SunTrust Bank Building in downtown for $8.6 million and the 485,000-square-foot
Koger Center in Brentwood for $45.7 million.
Large transactions in the
industrial market included Highwoods Properties' sale of its only business
center property, Grassmere Business Park, to Lord Baltimore for more than
$27 million. Lord Baltimore received close to 340,000 square feet in three
separate buildings and 17 acres of undeveloped land. Waldenbooks' 557,000-square-foot
distribution center in LaVergne sold to the L & B Group for close to $22
million or $39.50 per square foot. Aladdin Industries sold a 251,000-square-foot
distribution building on Elm Hill Pike in the heart of Metro industrial
Park for $6.4 million or $25.35 per square foot. Local investors Green
& Little bought the 106,000-square-foot building located at 509 Mapleleaf
Drive in Metro Industrial Park for $2.6 million. Earlier in the year,
Green & Little purchased a 110,00-square-foot bulk building at 1260 Heil
Quaker Boulevard in LaVergne from Crescent Resources for $3.2 million.
First Industrial made a sizeable addition to its existing portfolio by
purchasing a group of buildings on Nesbitt Lane in Madison from Ozburn-Hessey.
The buildings totaled 338,000 square feet and sold for approximately $20.12
per square foot. They later sold the 45,000-square-foot building at 1040
Acorn Drive to a local partnership for approximately $34 per square foot.
Nashville will continue to add investment grade real estate to the market
and continue to be an attractive second-tier investment market for investors.
Investors for these type properties will be REITs, pension funds and local
and regional investors.
The Nashville office market displayed promising
growth during 2000 as 1.25 million square feet was absorbed, causing the
overall vacancy rate to remain steady at 10.6 percent. This is the highest
amount of net absorption recorded in over seven years. The market also
boasts the largest amount of new product that Nashville has seen in the
last 10 years, adding nearly 2 million square feet to the office market
and bringing inventory levels over 22.5 million square feet. The overall
market saw net absorption in Class A space top off at around 1.08 million
square feet, surpassing 1999 year-end totals by 330,000 square feet.
year-end 2000, 795,000 square feet of office product was under construction
in the Nashville market. Coming as no surprise, the Brentwood/Cool Springs
submarket is the heavyweight, hosting all of Nashville's new office construction.
Leasing activity in the central business district has picked up dramatically
from this time last year. The fourth quarter alone absorbed nearly 100,000
square feet, leaving the year-end net absorption total around 170,000
square feet, which is five times greater than the year-end total for 1999.
Activity in Class B buildings is the highest that this submarket has seen
since 1996, as this product type accounted for 92 percent of the total
absorption. For the first time since 1993, the central business district
experienced new product coming to the market. During the second quarter,
the Commerce Center added 225,000 square feet of new Class A space to
the downtown inventory.
The suburban markets continue to remain the focal
point of much of the leasing activity and new construction as year 2000
comes to an end. Vacancy rates rose slightly to 10.4 percent, up from
last year's 8.7 percent, due to the record amount of new product that
came on-line. Despite the fact that suburban markets absorbed a record
1.08 million square feet of office space in 2000, the vacancy rate rose
a bit. Leasing activity in the suburban markets represented 86 percent
of overall occupancy growth in 2000, compared to 92 percent for 1999.
The Brentwood/ Cool Springs submarket continues to be a virtual anomaly
compared to the rest of the market as absorption and construction levels
in this area substantially outpace the other submarkets. The fourth quarter
experienced 124,000 square feet of absorption, which brought the 2000
net absorption to 450,000 square feet, second only to that of the West
End/Belle Meade submarket. The large amount of tenant activity in this
submarket caused the vacancy rate to drop from 8.6 percent at year-end
1999 to the present rate of 7.5 percent. In the Cool Springs area, pre-leases
and buildings coming on-line with very little vacancy are becoming more
and more common.
Mission Property Company is seeing signs of a strong
market with activity in its largest project, 200,000-square-foot Park
Center at Maryland Farms in Brentwood. Half of the second building, to
be completed this September, was recently leased to LBMC Financial. The
first building is 100 percent leased to Gambro Healthcare.
plans to explore further development opportunities in Nashville. Leasing
activity has been good in the projects Mission Property has developed.
"From a leasing perspective, we see strong absorption," says Crews Johnson,
president of Mission Property Company. "When you tie that in with more
restrained development, it should lead to a very stable market."
is currently finishing up leasing its second building in Brentwood, Creekside
Crossing II, which is the second of a four-building project.
is also finishing the first phase of Aspen Grove Office Center, a four-building,
364,000-square-foot project in Cool Springs. The development is part of
a 1.5 million-square-foot office/flex and distribution project.
End/Belle Meade submarket appears to be at its healthiest in years, as
completed construction and net absorption levels remain high. Although
only 47,000 square feet was absorbed in the fourth quarter, down from
the 294,000-square-foot mark in the previous quarter, absorption for the
year is the highest this submarket has seen in the last decade. With 650,000
square feet of absorption this year, the vacancy rate fell from 7.5 percent
a year ago to the current rate of 5 percent. Nashville's largest office
lease of 2000 took place when Sprint PCS Application Development Solutions
leased 105,000 square feet in the 2525 West End building, which is quoting
the highest asking rates in the market.
There are many users still looking
for space and a number of deals pending in the market, which should carry
a good deal of momentum into 2001.
Thus net absorption and occupancy levels
in the Nashville market should hold steady in 2001 if an economic slowdown
does not hamper demand for new space. The Brentwood/Cool Springs submarket
will continue to be the driving force for absorption in the Nashville
market as well as hosting most of the new construction. Overall construction
levels might begin to taper off towards the end of 2001 until demand can
catch up with the amount of supply currently on the market. Some market
areas that have not seen much leasing activity could see rates start to
fall in order to become more competitive in attracting tenants.
Activity in the Nashville retail market remained strong during 2000 as
overall consumer spending continues to be a major factor driving the U.S.
economy. The retail industry in the mid-state area continues to see steady
growth as total retail revenue for 2000 totaled $22.5 billion. Recent
construction trends, particularly in the Cool Springs area, have pushed
the total local retail inventory to approximately 25 million square feet.
Also, the retailing sector of the local economy continues to create more
jobs than most other sectors.
The Cool Springs area is home to Middle
Tennessee's largest mall, Cool Springs Galleria, which is owned by CBL
& Associates Properties. This area continues to receive the most attention
from national retailers. Over the last two years the areas surrounding
the mall have really begun to take off as a number of projects have added
a significant amount of retail space to the area. Big box retailers that
will soon call Cool Springs home include Bed Bath & Beyond, Harris Teeter,
Office Depot and Wal-Mart.
Ben Blakeley is director of research for Colliers
Turley Martin Tucker in Nashville, Tennessee.
©2001 France Publications, Inc. Duplication
or reproduction of this article not permitted without authorization
from France Publications, Inc. For information on reprints of
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