Katie Barton, Colliers International
All of this activity has created the demand for more site-ready properties that can accommodate build-to-suit projects and be delivered quickly. Nashville’s continued evolution as the South’s leading auto manufacturing hub, as well as its favorable central location, has bode well for the industrial market over the last few years.
Favorable Fundamentals
Nashville’s industrial market vacancy rate of 7.1 percent at the end of fourth-quarter 2014 is the lowest it has been since the fourth quarter of 2008, and the 2014 total net absorption has reached more than 2.25 million square feet, the highest absorption since 2006. This year is projected to be a banner year for new construction with multiple build-to-suit projects underway throughout the 10-county region. Industrial construction in Middle Tennessee reached over 1 million square feet at the close of fourth-quarter 2014 alone, and more build-to-suit projects are planned through 2015.
Nashville remained a prime target for industrial investment in 2014, closing out the year with more than $709.6 million in industrial deals, up from $589 million in 2013, according to Real Capital Analytics. The majority of the transactions in 2014 were properties over 100,000 square feet, and about half of those are located in the Nashville Central Business District. The third quarter experienced the most transaction volume in terms of square footage, totaling more than 4.3 million, and the fourth quarter represented the highest total investment at $167 million.
Planned/Under Construction
Notable construction projects in the region are located in the collar counties of Wilson, Montgomery and Sumner counties. Last fall, Under Armour announced it will build a new 1 million-square-foot distribution and warehouse facility in Mt. Juliet, representing a more than $180 million investment, as well as creating 1,500 new jobs in the next five years. Nashville was one of three finalist cities for the company’s Southeast hub, ultimately being chosen largely due to the advantageous logistics of the region.
According to data from the Nashville Area Chamber of Commerce, 50 percent of the U.S. population lives within 650 miles of Nashville, and 24 states are located within that 650-mile radius. This location advantage translates to one- and two-day truck delivery times to more than 75 percent of all U.S. markets, a tremendous benefit to supply chain companies.
The relocation of Korea’s Hankook Tire to the region tells a similar story, where Nashville’s central location for logistics and the supply chain played a tremendous part of the decision to move to Montgomery County located a few miles northwest of Nashville. Hankook broke ground on its $800 million manufacturing facility, which will total 1.5 million square feet, in October.
One of the region’s biggest wins occurred in early 2014 with the announcement of Beretta’s relocation to Sumner County, located northeast of Nashville. Beretta attributed the move to the region’s favorable logistics networks. In the running with 80 locations across seven states in 2014, Gallatin was the chosen location for Beretta to build a 400,000-square-foot manufacturing and research and development facility. The company broke ground during the third quarter.
Market Impact
An example that demonstrates the existing strength of the industrial market and the magnetism that draws manufacturing and supply companies to the region is Nissan’s success during the past 30 years. Nissan’s growth throughout the years has brought significant job growth and investment to Middle Tennessee. Nissan established the first foreign-owned assembly plant in the Southeast to Smyrna in 1983, moved its North American headquarters to Williamson County just south of Nashville in 1999 and has expanded its space and workforce multiple times to accommodate its growth. Nissan’s plant in Smyrna is currently the country’s largest lithium-ion automotive battery plant.
Of particular importance is the economic impact that Nissan’s relocation has brought to the industrial market and the region. Firms that provide components to Nissan including Calsonic Kansei, Topre American Corp. and Valeo, MAHLE Filter Systems North America, NHK Seating of America, and nearly 250 other foreign-owned auto suppliers have relocated to Nashville in the wake of Nissan’s continued investment and presence in the region. As big-name companies move to Nashville, the expected and hopeful result is that other supplier companies will follow.
Tennessee is a magnet for attracting and retaining the big names in the logistics and advanced manufacturing industries. Record-setting numbers of business relocations and expansions, high-ticket investments, and sustained growth were some of the dominating themes of Nashville’s industrial market in 2014. Time put Nashville in the national spotlight in 2014 by naming it “Red-Hot Town”, and this momentum is expected to continue two-fold in 2015.
— By Katie Barton, Director of Research, Colliers International. This article originally appeared in the February 2015 issue of Southeast Real Estate Business.