David Huddleston and Hilton "Buck" Forcum

“It appears that for 2002, the Nashville, Tennessee, office market will have a negative net absorption for the first time in 20 years. For the first 9 months, our net absorption was negative 460,000 square feet,” according to Grubb & Ellis|Centennial’s David Huddleston, managing director, and Hilton “Buck” Forcum, senior associate.

“The good news is that only 135,000 square feet of new space is under construction and we believe the Nashville office market has bottomed out,” they continue. “Our economy is very diverse and we always bounce back before the rest of the nation. We won’t be surprised if net absorption for 2003 is over 850,000 square feet, which is the average for the 5 years prior to 2002.”

Over the past 10 years Nashville’s average vacancy rate has been 11 percent, and between 1982 and 1991 the average vacancy rate was 21 percent. Put in context, the current 15.6 percent vacancy rate isn’t that bad. To a large extent the current vacancy rate is due to the fact that 2.9 million square feet of new space was added in 2000 and 2001.

A significant development of note is Burton Hills IV, a 135,000-square-foot building in the Green Hills submarket. This is the only speculative office building of any size that is presently under construction. It is approximately 80 percent leased.

“Many developers would like to come to Nashville, but it is a tough market to break into,” say Huddleston and Forcum. The most active developers in recent years have been Crescent Resources, Highwoods Properties, Hines, Duke Realty Corporation, Alex Palmer, Gaedeke Landers and Cumberland Financial.

The largest recent lease was to Bridgestone/Firestone, which leased 210,000 square feet in the Highland Ridge Office Park in the Airport area. Vanderbilt Medical Center also recently completed the lease/purchase of the Crystal Terrace Building on West End and plans to occupy about 70,000 square feet in the building. Vanderbilt University has also signed leases for approximately 70,000 square feet in two other buildings in the West End area in the last 6 months. Nashville has many strong private healthcare management companies such as HCA that occupy large blocks of office space.

Rental rates for Class A space range from $16.50 to $23 per square foot. The vacancy rate is 15.6 percent overall, with Green Hills having the lowest vacancy rate (9 percent) and MetroCenter the highest (30 percent).

For the past 5 years, the Brentwood/Cool Springs submarket has grown due to new development. Huddleston and Forcum say the Brentwood/Cool Springs submarket will continue to be vibrant over the next 12 months, but the Airport area will also attract significant activity due to the attractive deals that are being offered. A recent example is the 210,000-square-foot lease by Bridgestone/Firestone.

David Huddleston is managing director and Buck Forcum is senior associate with Grubb & Ellis| Centennial.

©2002 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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