SOUTHEAST SNAPSHOT, JULY 2005
Nashville Office Market
The Nashville, Tennessee, office market recently has seen several trends affecting development. For the last 2 or 3 years, infill, tenant-driven, niche development has characterized the market, but as the vacancy rates enter single digits, 5 percent in some sought after submarkets, the city is entering its typical cycle of speculative development, and users are realizing that increasing land and construction prices will yield suburban rental rates above $20 per square foot.
Office Division Leader/Principal
Colliers Turley Martin Tucker, Nashville
Overall, the vacancy rates in the Nashville office market currently sit at 13.3 percent, with the rate for Class A office property weighing in at 11.2 percent and the vacancy for Class B developments checking in at 17.6 percent. As for rental rates, Class A properties are ranging between $18 per square foot and $25 per square foot full-service depending on the submarket; these rental rates currently are rising.
There is no office development under construction at the present time, but the second half of the year should see multiple buildings in the Cool Springs and Brentwood submarkets as each approaches 95 percent occupancy. This construction comes in direct relation to the development of executive housing in these affluent outskirt sectors. In addition, several suburban-type projects in the southern submarkets are just finishing up their final selections; the developments include two build-to-suits of 150,000 square feet and 300,000 square feet, respectively.
The SunTrust center, located within the central business district in downtown Nashville, is the first development in the CBD in 5 years, and it is providing a significant impact on the market. The building, which encompasses 320,000 square feet, is set to open in 2008 and currently is 60 percent leased. While modeled to attract suburban and out-of-town corporate tenants, the project most likely will absorb tenants from older Class A and B product, as it did with its two anchor tenants.
While the major developers in the market have not changed since the last development cycle in the late 1990s, Memphis, Tennessee-based Boyle Companies has entered the Nashville office market with the proposal of a 50-acre development in Cool Springs.
In addition, several major leases have been signed recently: Vanderbilt University Medical Center signed an 80,000-square-foot lease at the 3401 Building in the West End submarket; the state of Tennessee has signed a lease at the Plaza II, MetroCenter, for 140,000 square feet; CareMark also has signed in MetroCenter for 80,000 square feet; and SunTrust pre-leased 120,000 square feet in SunTrust Center, which is under construction at Fourth and Commerce in Nashville’s CBD.
In the future, the West End/Mid-town submarket is primed for the most activity. With its urban mix of living, eating, nightlife and office development, this sector should prove to absorb the most new construction. In addition, Cool Springs retains a stockpile of available land, so this submarket should lead the market in overall volume; the developments likely will tend to be more typical mid-rise suburban construction.
— Crews Johnston, office division leader/principal, Colliers Turley Martin Tucker, Nashville
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