The Nashville office market continues to have positive momentum coming into 2019, following three years of record-setting leasing that brought several big name corporate tenants to the market — plus a recent surprise announcement that Amazon will soon be adding 5,000 employees to Nashville’s central business district (CBD) within the Nashville Yards development.
The bulk of the activity is concentrated in CBD Class A office space, as tenants focus on real estate decisions that emphasize recruiting and employee retention. This trend mirrors activity occurring in many major markets across the country. Companies continue to seek the coveted urban work-live-play environments designed to attract the millennial population.
Melissa Liles
Vice President,
Avison Young Nashville
Avison Young research shows that the CBD recorded 255,330 square feet of positive net absorption at year-end 2018. Among the large companies that signed notable leases in the urban core in 2018 are Philips, AllianceBernstein and Asurion, which is adding 400 tech employees and consolidating several locations into a new 550,000-square-foot headquarters at 11th Avenue North and Church Street in the Gulch. Construction is scheduled to begin this year on that headquarters, with completion slated by the end of 2021.
Nashville’s strong business climate and robust office leasing activity have caught the attention of developers that currently have 3.5 million square feet of office space under construction, including speculative projects and two single-tenant build-to-suits. Development remains concentrated in the urban core with the CBD and West End submarkets accounting for 70 percent of the construction activity.
Historically, Nashville has been a preleasing market, but with construction moving ahead with only 26 percent preleasing in the speculative projects, this clearly shows developers have more confidence in the “build it and they will come” motto.
Nashville has also seen a proliferation of coworking space in recent years, as employment and population growth have surged in the region. This flexible work space growth puts Nashville right alongside major markets in its ability to attract national coworking brands that see the market as an opportunity for growth.
Chicago-based Industrious, for example, announced two new Nashville facilities and an expansion of its original facility at the Gulch Crossing building at 1033 Demonbreun St. This brings the total space absorbed by that firm alone to approximately 66,000 square feet over the past 18 months.
While many coworking spaces are being filled by traditional start-up companies, corporations are also taking over large blocks of space to support their needs for temporary or last-minute “swing” space. Most coworking leases are 12 to 18 months, versus the typical three- to five-year commitment with a traditional landlord.
Even Amazon is tapping into Nashville’s flexible work environment, leasing space at WeWork in the urban core until its new Nashville Yards building is delivered. Amazon’s new Operations Center of Excellence will bring tech and management functions to support the company’s Retail Operations division — an expansion expected to total $230 million.
Investors have also moved into the Nashville office market in force, purchasing a record $929 million in assets in 2018. Of that total, $238 million was in the fourth quarter. The largest sale of the year was Unico Properties purchasing One Nashville Place in the downtown submarket for $139 million, or $333 per square foot. The 24-story high-rise was 91 percent occupied at the time of the sale, with notable tenants including Regions Bank and WeWork.
Nashville’s strong office market development is becoming a catalyst for additional development in the hotel and multifamily sectors. The Nashville Yards project will not just be home to Amazon. It will also include a Grand Hyatt Hotel, boutique hotel, $44 million music venue, more than 1,000 residential units, retail space and additional office space. With continued population growth, the pro-business environment and central Southeast location, Nashville will remain in the spotlight and stay on the short list for many corporate decision makers, assuring a healthy outlook for the already robust office market.
By Melissa Liles, vice president of Avison Young Nashville. This article originally appeared in the February issue of Southeast Real Estate Business.