In spite of national trends, news of spiking default rates and a prediction of a national decline in retail tenancy, the middle Tennessee region appears to be emerging in equal (or better) condition from one of the most unusual years in history. Prior to the government-mandated shutdowns last year, retail activity in Nashville was at a fever pitch. A decade of year-over-year population and economic growth created a strong seller’s and landlord’s market, with no end in sight. The University of Tennessee’s Boyd Center for Business and Economic Research projected a 1 million-person population growth for Middle Tennessee by 2040. This strong, sustained growth pushed retail rents up more than 50 percent since 2010 and represents one of the largest cumulative increases in the nation, behind only Miami and Austin. In 2019, the Nashville region saw asking rents above the national average, according to CoStar Group. One year ago, the sudden and unexpected COVID-19 shutdowns made the collective hearts of 2008 survivors skip a beat. A real concern of what the next week or month might look like hit both landlords and tenants in the region, particularly in the downtown retail district that is historically reliant on tourism. As music …
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Multifamily Investors Await Clarity on Nashville’s Economic Recovery
Owners and buyers remain apart on pricing. Unlike some densely populated urban areas where the extent of the damage to local commercial real estate operations is unknown, the gap in Nashville persists due to uncertainty regarding the upside potential rather than downside risks. Owners are hesitant to list properties because the metro remains a safe portion of their portfolios. If this disconnect persists, pricing will return to pre-recession levels before many other areas of the country. In the early months of the COVID-19 pandemic, multifamily transactions slowed to almost a standstill. However, transaction velocity picked back up and made a strong rebound between the third and fourth quarters of 2020. Although total sales volume dropped from $1.9 billion in 2019 to $1.6 billion in 2020, it was still the third-highest sales output since 2010 and cap rates averaged 5 percent, down 28 basis points year-over-year. California-based investors represent the lion’s share of investment activity, purchasing over $650 million of assets in Nashville in 2020. We are seeing more cities buying into Nashville such as Virginia-based Snell Properties, which purchased Retreat at Iron Horse in the Nashville suburb of Franklin for $306,000 per-unit in September. San Antonio-based Embrey developed the Class …
In addition to the COVID-19 pandemic in 2020, Nashville weathered tornadoes that traveled through its core in the first quarter and a bomb explosion on 2nd Avenue North in the fourth quarter. Both catastrophes destroyed commercial properties. Despite these events last year, the fundamentals that make Nashville a strong office market remain unchanged. Nashville stays a magnet for corporate relocations, most recently attracting multiple companies from California. According to the Nashville Area Chamber of Commerce data, The Daily Wire, Design Lab, N2M Advisory and Revance Therapeutics announced relocations in the second half of 2020. These announcements encompass over 100,000 square feet of office to be occupied and 540 jobs total. Industry experts surveyed by Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC) for the latest Emerging Trends in Real Estate report ranked Nashville as the No. 3 “Market to Watch in 2021.” This is Nashville’s sixth consecutive year in the top 10. The report credits Nashville’s attractive business climate, affordable cost of living and speed of recovery post-COVID-19. The report names Nashville as one of six new boomtowns as it’s a top in-migration market that is attracting a large share of smart young workers. Additionally, ULI and PwC acknowledge that Nashville …
“When you’re hot, you’re hot.” These old lyrics from Jerry Reed ring loud and clear these days for industrial real estate in Nashville and Middle Tennessee. Over the past five years, Nashville has been on a tear with industrial activity. At the start of 2021, Nashville appears to be pushing the fast forward button, even with COVID-19. There is a growing list of buyers, developers and users looking to enter the Nashville industrial market at unprecedented levels. With that said, can the supply of industrial product and land keep up with the demand? Where will the product be built? And what will it look like? Historically, Nashville has never seen a large supply of speculative big boxes built in comparison to our neighbors such as Memphis and Atlanta. Unless a build-to-suit, larger buildings have had a longer lease-up time in comparison to our neighboring cities. Nashville is a meat and potato market with the vast majority of our deals in the 75,000- to 150,000-square-oot range. Sure, like any market today we have seen our large third-party logistics deals with the likes of Amazon, Geodis and FedEx leading the way. Typically, our market may see one or two of these larger …
The Memphis industrial market was off to another record-setting year for the third straight time. Then, the Mike Tyson punch no one could have ever expected came: the shutdown of the entire country. Even after sheltering in place for months and nonessential businesses out of the office until further notice, our industrial market is holding firm. The Memphis industrial market holds over 285 million square feet of useable space and offers the basic tenets for distribution. Memphis International Airport is the second largest cargo airport in the world. Additionally, Memphis is home to 400 trucking companies; it is the third-busiest trucking corridor (Interstate 40 spans from East Coast to California); it is one of only four cities to be served by five long-haul Class 1 rail systems; it has the fourth largest inland port in the country; and it has the second largest stillwater port. Memphis is also home to the FedEx worldwide hub and also houses UPS and US Postal Service hubs. All these companies operate 24 hours per day, 365 days per year. Because of this, Memphis provides the most cost-effective distribution and logistics operations in the country. And in the midst of a worldwide pandemic and shelter-in-place …
Amid the uncertainty this year has brought, the Memphis office market’s fundamentals have continued to be stable through the end of the second quarter of 2020. Net absorption posted negative gains, recording 53,389 square feet of negative net absorption this quarter. While occupiers seeking rent relief was of minimal consequence, the steady demand allowed the total vacancy rate to decrease 80 basis points from the first quarter to 14.5 percent in the second quarter of 2020. Office tenants are continuing to pay rent on time, with less than 4 percent attrition on overall rent collection, which is no different than normal. In Memphis and the Southeast overall, leasing activity in this latest quarter was driven almost exclusively by near-term lease expirations. Similar to years past during various cycles of economic slowdowns, we are again seeing the overwhelming majority of new lease prospects limited to those companies who “have to” move, versus those companies that “want to” move. This is understandable, given the myriad of hardships caused by the pandemic and the limitation it has imposed on travel, group meetings and overall workplace usage. In fact, many companies have paused to assess their future space utilization, and whenever possible are delaying …
Perhaps there is no better way to describe the Nashville office market and its progression than to examine the recent transaction history of two of Nashville’s older generation office buildings, Fifth Third Center and Bank of America/Philips Plaza. Both of these office towers are 1980s vintage with significant renovations in the last three to four years. However, no renovation can cure some of the obsolete issues with these buildings: limited parking, inefficient floorplates and old “core” locations. Nevertheless, these buildings have enjoyed rental growth, occupancy strength and consequently excellent sales transaction history. On a more macroeconomic level, investor activity remained on the rise in 2019 as Nashville has become a global real estate investment target with Nashville being in the top 10 list of markets in Urban Land Institute and PricewaterhouseCooper’s Emerging Trends report for the past five years. Nashville’s presence on this list is supported with its business-friendly environment, population growth, growing IT workforce and appeal as a leisure and meeting destination. In 2010, Nashville’s overall office vacancy rate was 12.2 percent with its Class A rents averaging $22.41 per square foot. Today, the market’s vacancy rate is 8.4 percent with Class A rents averaging $31.20. Clearly, the Nashville …
Nashville ranked as the No. 3 Market to Watch in 2020 according to Urban Land Institute and PricewaterhouseCooper’s report, Emerging Trends in Real Estate. The report credits Nashville’s population growth, investor demand, development opportunity and job growth. According to the Tennessee Department of Economic and Community Development, 100 economic development projects — including industrial-space-users ICEE, Togo North America and A&C Business Enterprises — announced relocations or expansions in Middle Tennessee, representing $3.2 billion in investment and 14,000 jobs. Nashville’s industrial market is firing on all cylinders. Demand for space has been met with elevated rent growth throughout the market, keeping Nashville’s industrial rates among the highest in the Southeast. The 755,314 square feet of absorption that occurred during the fourth quarter marks the 23rd consecutive quarter with an increase in occupancy, raising the 2019 net absorption to over 5.5 million square feet, resulting in a market vacancy of 3.8 percent. Investor volume in Middle Tennessee exceeded $962 million in transactions at the close of 2019. This is the region’s highest industrial sale volume in the last five years, with the second half of 2019 accounting for 75 percent of the deals. Big-box users including Amazon, CEVA Logistics and Geodis have …
Nashville has experienced record multifamily demand in recent years, largely driven by an influx of young professionals and the growing presence of high-earning jobs within the urban core. With investment activity flourishing at more than $2 billion in sales volume year-over-year as of the third quarter, Nashville remains poised as a city on the rise. Nashville investors have continued to aggressively pursue the value-add and suburban submarkets in search of higher yield transactions, as the market’s average price per unit increased by over 15 percent year-over-year. Momentum continues to build in Nashville, making it an attractive destination for national investors looking to maximize their investment potential. Migration expansion One of Nashville’s greatest strengths remains its ability to attract and retain its highly educated, millennial workforce. Nashville is among the fastest growing markets in the United States, with over 58,500 people projected to enter the workforce between 2019 and 2024. The market consists of a highly educated resident pool, with 33.1 percent having earned a bachelor’s degree or higher. That number is expected to increase by 13.4 percent through 2024, with four major universities producing college graduates who enter the Nashville workforce. With such a sophisticated talent pool to occupy the …
With more than 30 cranes in Nashville’s skies, it’s safe to say the Music City commercial real estate market is humming along. In fact, Davidson County approved $4.2 billion of commercial and residential construction permits in the 2018-2019 fiscal year, according to the Nashville Business Journal. Over the last three fiscal years, the county approved $11.4 billion in permits. While that’s an outstanding level of capital investment in a county with under 900,000 residents, it should be noted that Nashville’s MSA comprises 1.9 million residents encompassing 13 counties — all of which are experiencing record levels of construction permits. New companies coming to the city are driving the office market and construction demand, with several large announcements in the last year including Amazon, AllianceBernstein and Mitsubishi, and the city is continues to rapidly attract companies in the financial services, tech and healthcare industries. With a limited number of buildings available for adaptive reuse, most development taking place in the market is new construction. In fact, more than 460,000 square feet of Class A space was delivered in the third quarter of 2019. The majority of that figure was in Midtown and the Cool Springs/Franklin submarkets, with Aetna and Ramsey Solution’s …