Nashville’s Office Pipeline Remains Robust to House Relocating, Expanding Firms
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 is already beginning to recover from massive job losses due to COVID-19. According to Federal Reserve data, Nashville’s unemployment decreased to 4.4 percent as of November and is down from the 15.7 percent peak in April.
One of the biggest effects the pandemic has had on Nashville’s office market was its impact on sublease space, a variable to watch for lasting impact of the pandemic and the work-from-home movement. At the close of 2020, 63 percent of current available sublease space came onto the market after March 1, days before the State of Tennessee mandated a stay-at-home order. An increase of available sublease space, delivery of new construction and sizable move-outs in the suburban submarkets were dominant themes in the fourth quarter.
Since March 1, over 1 million square feet of sublease space became available, equating to 3.2 percent of the market’s total inventory. Eighty-nine percent of this space is in the suburban submarkets. The largest blocks of sublease space that became available in this time frame are in Class A buildings, equating to 70 percent of the total.
Nashville has 680 existing buildings in its office inventory. Thirty properties have 50,000 or more contiguous direct or sublet space square feet available, and 19 buildings have 100,000-square-feet or more available. Market-wide, nearly 1.1 million square feet of sublease space is available, with 808,161 square feet of space currently vacant.
Nashville’s office market posted 263,332 square feet of negative absorption in the fourth quarter, bringing the year-to-date total to negative 415,791 square feet. Most of the negative absorption for the year occurred in Class B product, located in the airport submarkets and MetroCenter. Sizable move-outs totaling a combined 350,000 square feet include HCA/Parallon, Cigna and Change Healthcare. The largest move-in of the year was Blue Cross Blue Shield at One Century Place in Airport North (84,000 square feet).
Over the next 12 to 18 months, absorption is expected to fluctuate based on the decisions of multiple tenants that were delayed in their move into large blocks of space due to COVID-19. Multiple tenants continue to evaluate their office space needs, given their employees’ ability to work from home.
Despite the uptick in vacancy, developers remain optimistic about the market. Over 2.9 million square feet is under construction throughout the market, with the majority scheduled to deliver in 2021. These include Amazon’s Operations Center of Excellence at Nashville Yards, Asurion’s headquarters and Broadwest.
Developers also broke ground on One22One (365,000 square feet), 1030 Music Row (112,766 square feet) and Neuhoff (350,000 square feet). Panattoni’s 1030 Music Row creative office project is a first of its kind for Nashville, as the building’s frame, support columns and floor will be made of mass timber. The project is slated for a first-quarter 2022 delivery.
Nashville’s skyline saw dramatic changes with new deliveries in 2020, including 501 Commerce, Gulch Union Three Thirty Three and Peabody Plaza. This brings an additional 1 million square feet to the office inventory, with 519,609 square feet available for lease. Over 625,000 square feet of new construction was completed in the suburban submarkets, including Virginia Springs II, Hill Center Brentwood H1 and Brentwood Commons IV in Brentwood and McEwen Northside in Cool Springs.
Developers have nearly 5.2 million square feet of office space at the planning stage, with two announcements totaling 650,000 square feet in January. SomeraRoad unveiled the mixed-use project Paseo South Gulch, which includes two high-rise towers that would situate between two historic buildings that the company is currently renovating. Additionally, The Congress Group announced 2nd & Peabody, a mixed-use project development that consists of two high-rise towers with a hotel, office, and multifamily component.
Momentum has continued in Nashville throughout 2020 and into the first two months of 2021. Market fundamentals are stable and optimism remains positive, despite the hurdles faced in 2020.
— By Katie Lester, Director of Research, Colliers International. This article originally appeared in the February 2021 issue of Southeast Real Estate Business.