Ben Blakeley

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.

Construction activity 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.

Duke-Weeks 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 industrial park.

"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."

Both Nashville 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.

The East 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.

At 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.

The company 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."

Duke-Weeks is currently finishing up leasing its second building in Brentwood, Creekside Crossing II, which is the second of a four-building project.

Duke-Weeks 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.

The West 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 this article contact Barbara Sherer at (630) 554-6054.

Search Property Listings

Requirements for
News Sections

City Highlights and Snapshots

Editorial Calendar

Today's Real Estate News