Cranes Inhabit Nashville Skies as Office Market Booms With New Projects
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 build-to-suit office buildings totaling 306,000 square feet. By the end of this year, a total of 1.6 million square feet is targeted for completion, almost double the 15-year historical average.
Preleasing activity to fill those developments remains strong and consistent, with an average of 42 percent in Midtown and CBD submarkets. Speculative buildings 501 Commerce and Peabody Plaza have grown to 59 percent and 42 percent preleased respectively prior to their completions, which are both slated for mid-2020. Market intel suggests both of these buildings are nearing leases to drive the preleasing rates much higher.
Prior to its recent completion another speculative office project, the 106,480-square-foot One Music Circle, also attracted preleasing of 45 percent from both BMG Music and law firm Shackelford.
This is impressive as Nashville is traditionally not a strong preleasing market. Due to limited available space and new construction in the urban core, direct asking rents are expected to increase into 2020 — especially in buildings with a mixed-use component, which are experiencing the highest levels of absorption. Even in the suburbs, development is trending toward walkability, with landlords and developers looking to capitalize on the higher rents typically associated with amenities within walking distance.
With a high quality of life and low cost of living, Nashville is poised to continue to grow in popularity as companies seek new markets in which to locate or expand. With 17 colleges and universities in the area and each year more than 18,000 graduates choosing to remain in the MSA, the talent companies so desperately seek is prevalent. If that source of educated labor was not enough, Nashville’s talent pool is augmented by a robust population growth that is reported to welcome 85 new arrivals per day. With all this activity, it is clear companies are starting to realize the many great opportunities Nashville offers, and it will only continue to improve.