After national media declared traditional brick and mortar retail to possibly be on it’s “last leg” due to the COVID-19 pandemic, the Nashville area has seem quite the opposite reaction. Already in an accelerated state of demand going into the shutdown of 2020 that extended into a malaise in 2021 in many places, Nashville is seeing all indicators of the hottest retail market in its history.
Prior to the pandemic, rents and occupancy were already at historic highs. 2020 began with a continuance of that trend and ended the year higher with the most active submarkets closing the year below a 5 percent vacancy rate across all retail product types as the market absorbed more than 300,000 square feet of new product.
During 2021, the region experienced further good news for landlords with rents increasing at one of the fastest rates in the United States (more than 8.8 percent). This continues a trend lasting more than 10 years where regional rent growth outpaced the national average. This growth was at least partially driven by a vacancy rate at year-end of only 3.7 percent.
The primary driver of these metrics continues to be population growth and a low level of retail construction. According to research from CoStar Group, the region has less than 570,000 square feet of retail space currently under construction, a number that equates to less than 0.5 percent of the total inventory. Additionally, the area added more than 80,000 residents last year alone, a rate of approximately 220 new people per day.
With tightening levels of availability, strong rent growth and a lower level of new construction, entry into the market might seem daunting for new tenants. Quite the opposite appears to be the case. Driven by population growth, personal income growth and continued announcements of new jobs (stretching into the next eight to 10 years), retailers have taken notice that the Middle Tennessee area has a lot going for it and are desperate to grab their piece of the pie.
As would be expected, a fair amount of the interest comes from the services retail sector. As the population grows, so does the need for additional service providers. Trey Kirby, a broker with NAI Nashville, noted that a retail center he leases in Cool Springs has had six lease proposals presented since the beginning of the year, each from a new-to-market tenant. Kirby shared, “When we began marketing the vacancy, initial interest was slow. We saw an enormous amount of interest as we entered the new year — all of it from tenants hoping to land their first or second location in the region.”
Holly Buchanan, CCIM and senior director with Katz & Associates in Nashville, is currently working with eight national-credit or multi-unit franchisees, all active in the Middle Tennessee market. “They are all looking to open two to three locations in the area per year over the next five years,” she noted. “We are not looking for a single size either. They range from as small as 1,600 square feet to 5,000 square feet, with one focused on a 10,000-square-foot footprint.”
A quick survey of the most active retail brokers in the market finds a healthy blend of users on the hunt for space. Traditional retailers, restaurant users including multiple new-to-market coffee concepts, fitness, apparel and pet-related users are included in the mix. Tenants are also focused both on the urban core and tourist districts, as well as the suburbs.
As Nashville continues to grow, it will prove to be a challenging market for those entering for the first time. As retail developers continue to face record costs for available land, we are likely to see continued rent growth and record-low vacancy.
— By Devin McClendon, SIOR, CEO of NAI Nashville Stanton Group. This article was originally published in the February 2022 issue of Southeast Real Estate Business.