Nashville, Tennessee’s commercial real estate market had a successful 2003. According to local real estate leaders, the office market appears to be rebounding and investors are interested in the overall market. The industrial and multifamily markets are improving. On the other hand, the retail market could use some change for the better. Although there are some retail projects to speak of, there is a general the lack of retail development in Nashville due to a limited amount of appropriately zoned land.


Consistent with the national economy, Nashville’s office market appears to be rebounding. Market drivers include a number of recent corporate relocations, government users from both the county and state governments, and an increase in small business demand. A strong indicator of recent positive market activity is that sublease space is down 160,000 square feet from the previous quarter without any appreciable increase in vacancy rates. This is the lowest level of sublease availability since 2001.

Despite the upbeat trends and an active market, vacancy rates lingered around 16.5 percent during the last 6 months while absorption stood at a positive 36,000 square feet for the year. Vacancy rates should experience modest declines over the next few months with the arrival of corporate headquarters for Louisiana-Pacific and Asurion. Fifth Third Bank is also looking for office space as it enters the Nashville market. Absorption rates should remain positive as indicators point to moderate but sustained improvement.

Construction during 2003 was subdued. In early November, construction was completed on an 80-percent-pre-leased, 50,000-square-foot Class A building. There were two additional Class A buildings totaling 358,000 square feet added to the inventory; these two buildings are conversions from single-tenant usage and came on line vacant but quickly posted 44,000 square feet of positive absorption. A 225,000-square-foot Class A building, already 50 percent pre-leased, is scheduled for completion early this year. Look for speculative construction to remain constrained with developers willing to build for a strong credit tenant.

Even though the office market is rebounding, it still remains a buyer’s market. Sublease space is down but vacancy rates remain static, exerting downward pressure on asking rates. Effective rents are down with owners willing to make concessions to sign/retain tenants. From the tenant’s perspective, there have been numerous renewals brokered under very favorable terms. Companies have expanded into larger facilities while remaining in the same submarket. The net effect on market statistics is minimal but expansions mean more employment and increased employment drives future expansions.

For the near term, look for Nashville to post lower vacancy rates and increased positive absorption. In addition to Asurion and Louisiana-Pacific, the Tennessee Lottery Commission is occupying 50,000 to 90,000 square feet and TennCare will occupy a build-to-suit in MetroCenter. Even though the TennCare building will not contribute to the multi-tenant statistics, it will provide a needed boost to a submarket that has experienced extraordinarily high vacancy rates throughout 2003. The suburban markets are going to see some relocation of tenants and some limited expansion by existing tenants. The suburban markets have quality facilities available at very competitive rates.

Whitfield Hamilton is the managing principal of Colliers Turley Martin Tucker’s Nashville office.

Investment Market

There is a “river of money” coming back into Nashville’s commercial real estate market. Institutions appear to have more money than they can spend, and they are looking for quality facilities or buildings with a value-added opportunity. Private money is also having an impact on the market as these investors pursue favorable returns and direct their funds to the safety of real estate. The low interest rate environment is making ownership a viable alternative to leasing.

Nashville investment sales in 2003 ran the gamut from trophy buildings to value-added properties. The prestigious Class A, 315,000-square-foot Caterpillar Financial Center in West End sold for approximately $200 per square foot to Wells Real Estate Funds. The Airport submarket saw the Class A, 536,000-square-foot One Century Place sell to DRA Advisors for $53 million, or $98 per square foot. Another suburban sale had J.P. Morgan paying $18.8 million, or $125 per square foot, for the 150,000-square-foot Corporate Center VI located in a campus-style setting within the Brentwood/Cool Springs area — one of Nashville’s best performing submarkets. A value-added transaction at the other end of the spectrum was the sale of the 164,000-square-foot Oaks Complex — an eight-story high-rise and a two-story garden office — that sold for $6.25 million, or $38 per square foot.

Whitfield Hamilton is the managing principal of Colliers Turley Martin Tucker’s Nashville office.


Much like the nation’s economy, which appears to be on the mend, the greater Nashville area commercial real estate market seems to be improving, especially in the industrial and multifamily markets. While the multifamily market experienced only a slight upswing in the latter part of 2003, the industrial numbers showed brisk activity in sale transactions, by both users and investors, in a variety of sizes and submarkets.

According to PeerMark research, a sale representing more than half of the vacant industrial space in the eastern Nashville market occurred in the third quarter of 2003. MetCom Investors purchased the former Kroger distribution facility, a 390,000-square-foot, 40-acre facility, for $5.65 million. The new owners plan to renovate the warehouse by returning refrigerated space operations and creating sites for build-to-suit developments.

Another sizeable purchase was made by an investors’ fund, headed by First Industrial Realty Trust of Chicago, which paid $8.5 million for a 305,000-square-foot warehouse in west Nashville. Additionally, First Industrial sold a facility for $8.1 million in the southeast submarket to Clopay Plastics, one of two tenants occupying the 206,000-square-foot building. First Industrial and partner Carlyle Investments sold a 166,500-square-foot warehouse facility in the northeast market for $2.9 million, which represents the largest year-to-date industrial sale in that submarket.

“We are encouraged by the greater Nashville market. As evidenced by our recent activity, we continue to find good opportunities from both a buyer’s and seller’s perspective,” says David Harker, First Industrial’s senior director for the Southeast region.

Industrial leasing transactions continue to make positive strides, specifically in the area of absorption. As of the end of 2003’s third quarter, PeerMark Research showed a positive absorption of more than 1.7 million square feet. Compared to previous numbers of negative 1.47 million square feet, this represents a shift of more than 3 million square feet in just 1 year.

One recent noteworthy lease involved CarMax Auto Superstores. The south Nashville tenant leased more than 76,000 square feet. “This transaction worked out well for both parties,” says Bill Carothers, trustee for the Stirton Oman Trust, owner of CarMax’s new location. “We leased to a national, high-profile tenant, and CarMax was able to stay in the neighborhood.”

Though landlords are encouraged by the recent activity and absorption, rental rates aren’t as encouraging. PeerMark Research data shows that the average rental rate for the industrial market is currently $3.97 per square foot, down 1.5 percent from the same time in 2002. There is more than 15.3 million square feet of industrial space available in the Nashville area, and tenants continue to enjoy abundant leasing opportunities with negotiable landlords.

John Gifford, CCIM is the 2003 President of the Greater Nashville Association of Realtors and an office broker with NAI Mathews Partners.


On the other hand, the Nashville multifamily market continued to tread water in 2003. While occupancy rates and rents increased by healthy amounts toward the end of the year, comparing them to the prior year reveals that a substantial portion of those gains were attributable to seasonal increases.

The southeast market proved to be the most active with an increase in occupancy of 7.9 percent over the second quarter of 2003. However, it only posted a 0.7 percent gain when compared to 2002.

The Greater Nashville Apartment Association reports that the third quarter of 2003 ended with an overall market occupancy of 93.46 percent — up from 92.31 percent in the second quarter, but slightly below the third quarter of 2002.

The north Nashville market led all submarkets in terms of occupancy gains with a 17 percent increase from second quarter and 3 percent increase compared to 2002. The northeastern submarket had the most disappointing quarter with a 1.5 percent decline in occupancy from the second quarter and a 4.25 percent drop from the third quarter of 2002.

The average rent for a Nashville apartment was $698 in the third quarter of 2003, up 2 percent from previous numbers. Furthermore, only four submarkets out of 15 posted a decline in their street rents compared to 2002.

The year wrapped up with a record-setting transaction. The sale of Wyndchase Aspen Grove closed, setting a new Nashville record for the highest price paid for a single property at $50 million. That sale also takes second place in the highest price per unit and per square foot.

John Gifford, CCIM, is the 2003 President of the Greater Nashville Association of Realtors and an office broker with NAI Mathews Partners.


Nashville’s retail market has a shortage of small box space available, especially in the Cool Springs and Green Hills areas, where new space is often leased before it’s built. In addition to 1,200- to 1,600-square-foot boxes being in short supply, existing big box spaces are hard to find. Nashville proper hasn’t experienced the retail development that other areas like Hendersonville, Lebanon and Murfreesboro have. The main reason for the lack of development in Nashville is a limited amount of appropriately zoned land.

Even given a space shortage, business is not easy for developers in Middle Tennessee. Brentwood, the 11th richest county in the U.S., discourages developers from interior commercial development. Instead, developments just over the city line are encouraged, including a recently opened Wal-Mart Neighborhood Market on the southern edge of Davidson County and a proposed Target-anchored center at the former Elks Lodge property on Old Hickory Boulevard between Nashville and Brentwood. Also planned is Concord Place, a grocery-anchored center to be located at the corner of Concord and Nolensville roads in Davidson County. Developers don’t seem to mind "border development" because it allows them to serve a broader market by drawing from the two communities.

Other new developments include The Shoppes at Thoroughbred Village II in Cool Springs. The project, to be situated at the corner of Aspen Grove Drive and Cool Springs Boulevard, is being developed by Brookside Properties and CSP Associates. No anchor is planned at this time, but an anchor could be accommodated in the three buildings totaling 50,000 square feet. Willowbrook Marketplace, a 117,000-square-foot Kroger-anchored center, is planned for land at Briley Parkway, Thompson Lane and Interstate 24.

Chevy’s Inc., the parent company of Rio Bravo, has filed for bankruptcy protection. The company has closed all of its Rio Bravo restaurants, including two Nashville-area restaurants, one in the West End and a second near RiverGate Mall. Famous Dave’s Barbecue is coming to Cool Springs, and Birmingham, Alabama-based Jim ‘N Nick’s Bar-B-Q is expanding into Nashville. The 5,500-square-foot restaurant will be located next to The Marketplace shopping center in the West Meade area. A 16,000-square-foot Ace Hardware will backfill the upstairs of the former Dillard’s at Donelson Plaza, and Bombay Kids will occupy 9,000 square feet on the former site of Luby’s Cafeteria on the interstate side of the CoolSprings Galleria.

Verizon Wireless has created a new national call center by retrofitting the former 158,220-square-foot Shops at Riverrock in Murfreesboro. The facility opened in November and now houses 1,000 employees. Infrastructure changes may be in the cards for Smyrna, at I-24 and Rocky Fork Road. The proposed interchange would relieve traffic on Almaville Road and Sam Ridley Parkway and would be the town’s third interchange. Inland Retail Real Estate Trust recently acquired Kensington Place in Murfreesboro for $6.8 million from Kensington Place MT LLC. The 70,624-square-foot Bi-Lo-anchored center sold in November.

Inland also acquired Bellevue Place Shopping Center in Nashville for $10.8 million. The center, which sold in August, includes Bed Bath & Beyond, Michael’s, Petco and 20,800 square feet of shop space. Also in August, DLC Management acquired Bell Forge Shopping Center from Investcorp International and Crow Holdings for $11.3 million. The 130,475-square-foot community center, located in Antioch, is anchored by Michael’s, T.J. Maxx, Shoe Carnival and Blockbuster Video.

Lynn Leonard is vice president of marketing with NewBridge Retail Advisors.

©2004 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.


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