The Nashville, Tennessee, metropolitan statistical area, which includes 10 counties, has grown to an estimated 1.28 million people and remains ranked among the nation’s best places to work and live. Aptly named Music City USA, Nashville is also a regional center for insurance and banking, a national center for healthcare and car manufacturing, as well as printing and publishing. The tax environment is favorable, attracting Louisiana Pacific, Nissan and Bridgestone APM in 2004, along with the planned expansion of many businesses through the first part of 2005, including Hot Topics and Ray-O-Vac. With the unemployment rate well below the national average at 3.5 percent and low interest rates, Nashville’s housing market has seen record home sales.

Conservative growth, continued consumer spending and job creation have led to more sublease burn off and a positive net absorption (more than 500,000 square feet) in 2004. The office market has seen steady growth with the overall vacancy rate down by almost 1.5 percent from third quarter 2003, partially due to the new Tennessee Lottery, which took up over half of that net absorption for the year. Due to the increased activity, rates are stable and landlords are giving fewer concessions.

Nashville weathered the national recession better than other MSAs economically, partially due to its industrial diversity. Because of its location at the intersection of interstates 24, 40 and 65, Nashville has long been a desirable distribution point, with regional and national distribution centers for Bridgestone-Firestone, Dell and Toshiba. Industrial occupancy is increasing, with landlords beginning to raise their rates, even if only by a few cents. The predicted upswing seems to have hit earlier than anticipated as a result of higher traffic in the market.

NAI Mathews Partners


Class A bulk facilities led the industrial market resurgence throughout 2004 while reducing vacancy rates from 16.4 percent to a year-end rate of 10 percent. In addition to improving occupancy, net positive absorption was almost 2.75 million square feet for 2004 while sublease availability remained in the 1.4 million-square-foot range.

Other bulk facilities posted 500,000 square feet of positive net absorption for 2004, thereby reducing vacancy rates from 17.1 percent to 15 percent for year-end.

Viewing bulk facilities in their entirety results in a 3.5 percentage point reduction in vacancy rates from year-end 2003 to the same period 2004 and almost 3.25 million square feet of positive net absorption achieved for the past 12 months.

Both the manufacturing and warehouse sectors in Nashville experienced a moderate decrease in vacancy rates from year-end 2003 in addition to posting positive net absorption. Manufacturing and warehousing each reduced their vacancy rate by .1 percentage point with manufacturing and warehousing posting 220,000 and 550,000 square feet of positive net absorption, respectively.

Last year’s outstanding results will have some short-term ramifications, specifically hampering a continuation of deal velocity in the short run since there’s a shortage of big box space. It will be short term, however, as developers move forward with new projects.

Duke Realty Corporation has started construction on Nashville Business Center II, a 500,000-square-foot building in the North submarket. In the East submarket, development and sales of industrial tracts along Interstate 840 are strong led by First Industrial’s new Couchville Pike Distribution Center. The first building is now under construction and will contain 300,000 square feet expandable to 800,000 square feet. The planned 180-acre Elam Road project by Panattoni Development Company will be one of the next industrial developments in the Southeast submarket. Additionally, Crescent Resources’ CenterPoint development represents another significant development. CenterPoint employs a new strategy and site layout for “big box” buildings, with plans for up to five cross-dock distribution centers ranging from 200,000 to 800,000 square feet.

As the economy improves, national and regional economic indicators continue to point to an expansion. Corporations increased productivity and cut costs by eliminating excess capacity during the recent economic downturn, and they are finally in an expansionary mode. Interest continues in single tenant facilities in the 22,000- to 30,000-square-foot range and build-to-suit facilities are still needed to meet market-specific needs. We look for sustained periods of industrial growth and anticipate absorption in the 2.5 million-square-foot range for 2005.

— Whitfield Hamilton, managing principal, and David McGahren, industrial division leader, Colliers Turley Martin Tucker-Nashville

Industrial Investment

The Nashville market continues to see some impressive investment activity. Some of the more significant deals that occurred during 2004 include:

• Panattoni Development Company sold Southpark Buildings B, C and E (1.24 million square feet) to Southpark Warehouse II Acquisition Corporation for more than $45 million.

• Ozburn Hessey Properties sold the MidSouth Logistics VI building, a 770,000-square-foot facility occupied by Cinram, to US Industrial REIT for $30.4 million.

• Eastgate Distribution II, a 403,750-square-foot distribution center, was sold by the KFH Fund to Lebanon NI Industrial LLC for approximately $17.4 million.

• American Real Estate Partners sold the 520,000-square-foot Mid South V building to Dividend Capital for $19.5 million.

• Ingram Book Group vacated its 530,000-square-foot building on Heil Quaker Boulevard and sold it to First Industrial Realty Trust for approximately $21 per square foot.

• The 423,000-square-foot Class A Eastgate Distribution III facility was sold by First Industrial Realty Trust to Dividend Capital Trust for approximately $14.3 million.

• Lord Baltimore Properties sold three business centers totaling 336,000 square feet and an additional 7.6 acres of land in the Grassmere Business Park to Talcott Realty Investors LLC for an estimated $30.5 million or $90 per square foot.

• Nashville Joint Venture LLC sold the 315,000-square-foot AmSouth Bank operations center on Metroplex Drive in the Airport submarket to Delpres Nashville LLC for $33.33 million in May; Delpres Nashville LLC then sold this facility to Benderson Development for $39.7 million in September.

The recovery in the corporate economy and the increasing likelihood of higher interest rates should help close the wide gap between the real estate capital markets and physical space market fundamentals. Vacancy rates should continue to fall as tenant demand recovers and new supply remains modest, while rising interest rates and an improving outlook for other asset classes diminish the appeal of real estate yields. For investors, these events signal a shift in investment strategy from the credit-driven investing that has dominated the market in recent years to strategies that focus on the opportunities created by the recovery in demand and, eventually, rents.

Whitfield Hamilton, managing principal, and David McGahren, industrial division leader, Colliers Turley Martin Tucker-Nashville


How big is your footprint? That was the question on the minds of many Nashville Class A tenants in 2004. Eakin Partners responded in a big way, with its 205,000-square-foot Midtown/ Music Row crown jewel, Roundabout Plaza. The largest broker-represented tenant that made the move to Roundabout Plaza was represented by John Gifford of NAI Mathews Partners. With a floor plate of 28,000 square feet, Roundabout Plaza highlights the emerging trend in office development in Nashville — more square feet per floor.

Looking forward, developers owning prominent parcels in Downtown and Midtown locations have either already been holding extensive discussions with prospective tenants or are attempting to expeditiously progress toward this consummative stage. And, once again, what seems to be driving some of these discussions is the increased demand for larger floorplates.

Some developers are recognizing the benefits of multi-use, whether it is on a limited basis, such as Tony Giarratana’s Viridian Tower, which is now under construction, or on a more expansive basis, such as The Hill Center, the multi-use marvel that broke ground in Green Hills in June. When completed, The Hill Center, a heavily conceptualized lifestyle center, will feature a multitude of retail options and some very appealing Class A office space.

Much has been made of the impending vacancies over the next few years should dozer-happy developers cause a rise in office vacancies. But, for now, the overall vacancy rate for Nashville office space is a mere 16.5 percent, and as long as corporations such as Caremark and Louisiana-Pacific continue to migrate to Nashville, fundamentals will continue to improve.

Wilson Rogers, NAI Mathews Partners


The biggest deal of the year in Nashville’s retail market involved the acquisition of 7044 Charlotte Pike. Macquire Bank Limited purchased the 199,365-square-foot building for $20.2 million.

Other major deals include Carolina Holdings’ acquisition in Mt. Juliet (103 acres for $6.5 million) and the Indian Lake Development (approximately $11.5 million for 83 acres) in the Hendersonville area, which will sport The Home Depot and Wal-Mart Supercenter.

While the Nashville retail market is heavily reliant upon its suburban submarkets (outside Davidson County) and has been for the past few years, there is also a new trend emerging downtown.

The continuing trend is the development of the Cool Springs, Hendersonville, Gallatin, Murfreesboro, Smyrna and Mt. Juliet areas as the desired properties in town are simply not available. With the “tax-cut-improved” economy, there is no stopping big box retailers such as Wal-Mart, Publix, Kroger, The Home Depot and Lowe’s, not to mention the smaller ones expanding including freestanding pad users Chick-fil-A, Zaxby’s, Panera Bread and multiple banks. The city of Gallatin recently annexed 800 acres next to Hendersonville and a developer has already signed a letter of intent for 120 of that 800 to build an open-air mall. There is an urgency on the part of Sumner County to attract large retail development in anticipation of the population boom predicted for the next 20 years.

The new trend for Nashville is the very encouraging rehabilitation and development of some downtown buildings, making proposed new and old space mixed-use for a segment of the population looking to relocate to the central business district. Church Street will soon be a bustling center of activity again with several adaptive reuse projects being developed by Tony Giarantana: The Veridian, a residential condominium with a grocery store and Signature Tower, a multi-use skyscraper that offers office, residential and retail spaces.

The completion of the renovated Metro Courthouse will directly impact the neighboring retailers as more than 300 metro employees resume their positions downtown. Along its boundary is the soon-to-be renovated Stahlman Building, an historic landmark that will be developed by The Mathews Company as retail and residential apartments sharing underground parking (under a public green space) with the Metro Courthouse across the street.

In keeping with the mixed-use trend, the exciting sports news for downtown is the announcement that the Nashville Sounds (AAA Baseball) have their financing to build a new stadium on 16 acres of city-owned property at the site of the former Thermal Plant. The ballpark will include a privately financed $40 million residential and retail development from Baltimore-based Struever Bros. Eccles & Rouse.

NAI Mathews Partners

2005 Forecast

The office market in Nashville is promising for 2005. There are plans for new office developments in the Brentwood, Green Hills, West End (300,000 square feet of Class A space proposed) and Downtown submarkets. The Green Hills development centers around 126,000 square feet of Class A office space surrounded by a retail avenue of shops and restaurants and will significantly impact the office activity in that submarket, due to the excellent location and quality of the project.

The next few years should show the kind of growth that Nashville saw in the 1990s, without the tech bubble that led to excessive expansion. Nashville will see a more sustainable market and steady growth of both white and blue collar jobs and will expect the market absorption to follow the trend from 2004 at roughly 700,000 square feet by year’s end.

NAI Mathews Partners

©2005 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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