Nashville Industrial Market is a Haven for Adaptive Reuse Opportunities
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 leased large blocks of warehouse space in the last two years, and demand for new product is fueling 3.7 million square feet of Class A warehouse space across the region.
There is also a growing demand for existing industrial space by non-industrial users, and developers have identified an opportunity to capitalize. Nashville is undergoing a re-emergence of adaptive reuse of existing industrial space into creative office product, particularly in the urban neighborhoods on the outskirts of the downtown core. Companies are reinvesting in existing industrial structures to create a new kind of product that does not fit the traditional definition of office or warehouse space.
According to the CCIM Institute’s Adaptive Reuse: Turning Blight into Bright report, a property qualifies as adaptive reuse if it meets the following: it is an existing structure; the property is in a state of disrepair and high vacancy; the project must involve a repurposing of use and there is a degree of economic viability that the project transformation will occur. The report also notes that adaptive reuse has been trending for over a decade in primary markets but is becoming more prevalent in secondary markets.
Nashville’s industrial market comprises 207 million square feet, of which 16.7 million is in the urban core. Adaptive reuse of industrial buildings have a footprint of 773,822 square feet of industrial space, with the majority concentrated on the outer rim of downtown Nashville. These high-demand properties have maintained 80 percent occupancy since 2011, ushering in a new wave of adaptive reuse projects in the last two years. These projects have a great story and history, have a high degree of walkability and are quick to lease up by creative firms.
Taylor Place, a mixed-use development located in historic Germantown, is the former home to Werthan Mills, Marathon Motor Works and the Hamilton Bag cotton mill. Situated at the center of the project is the iconic 60,000-square-foot Werthan Building. Werthan Package Inc., a locally owned family business since the 1860s and mass producer of packaging products, once occupied the building. Today, the building is undergoing extensive renovations for an adaptive reuse transformation. This building will combine modern infrastructure and amenities while maintaining the building’s authentic industrial character.
The May Hosiery project, located in the once-industrial Wedgewood-Houston neighborhood, is the restoration of 12 warehouse buildings that are chock full of history dating back to the early 1900s. Originally a manufacturing facility that produced socks for prison inmates, the factory began manufacturing 1 million socks per week and shipping them around the country. During World War II, the factory employed hundreds of Jewish immigrants and later clothed NASA Apollo astronauts. Today, the warehouses are being redeveloped for restaurants, stores and creative office users. Notable tenants include Tuck-Hinton Architecture & Design, SouthComm and Dream Technologies. The site also attracted Apple Music in July, which signed a lease for 25,378 square feet.
Also located in the Wedgewood-Houston submarket is Houston Station, a former manufacturing facility built in 1885 and the original home of May Hosiery Mill. While retaining the industrial aesthetic of the late 1800s, the building has undergone extensive restorations throughout the years and transformed into a hub for the creative community, with art galleries, photography studios and music companies.
CCIM predicts that adaptive reuse projects will likely increase two-fold over the next five years. Nashville has 1.3 million square feet of vacant space in warehouses smaller than 100,000 square feet. Some of this vacant industrial space may qualify as adaptive reuse and as such, this trend will be interesting to watch throughout 2020.
— By Katie Lester, Research Director at Colliers International. This article originally appeared in the February 2020 issue of Southeast Real Estate Business.