After several years in the top 10, Nashville was named the No. 1 “market to watch” in overall commercial real estate prospects, according to Urban Land Institute and PwC’s 2022 Emerging Trends in Real Estate report. Nashville surpassed its supernova competitors (markets with a population between 1 million and 2 million people) such as Raleigh-Durham, Phoenix, Austin and Charlotte. The report credits Nashville’s robust and sustained job and population growth, above-average levels of economic diversity and investment/development opportunities.
In short, Nashville’s economy fared relatively well during the pandemic-induced recession, and its industrial market never slowed down.
Katie Lester, Colliers Nashville
Nashville has been a top location for relocating and expanding industrial-using companies, as its location is unmatched for distribution. Fifty percent of the nation’s population lives within 650 miles of Middle Tennessee, with 24 states falling within that radius. This translates to a one- or two-day truck delivery time to more than 75 percent of all U.S. markets. Additionally, it is one of only six U.S. cities with three major intersecting interstate highways.
Nashville’s economy is extremely resilient due to its diversified economy. However, Nashville is not immune to national trends that have affected multiple industrial markets. The cost of construction continues to increase, pushing rental rates for industrial product to an all-time high in Nashville.
Though rents have increased 10 percent over the last year, it has not deterred demand or leasing volume. Of note, rent makes up about 8 to 10 percent of costs for industrial users. Costs for labor, gas and fuel make up a larger portion of total costs.
A second trend happening across the nation is the availability of labor. Nashville’s current employment levels are just under pre-pandemic levels, with construction and manufacturing employment nearly reaching that mark. Trade, transportation and utility jobs in the market have surpassed the previous peak. Nonetheless, availability of labor is a trend to monitor going forward.
Another unfortunate trend happening across the nation is supply chain disruption. Many development sites are pushing back their completion dates due to the delay of getting needed materials, everything from glass to microchips.
Interestingly, disruption can often lead to innovation. For example, the pandemic forced new technology for office-using companies as many became experts on different virtual meeting platforms. On the industrial side, more robotics are being infiltrated into industrial product. Existing warehouse owners are ensuring that they can upgrade their power supply as more and more tenants are needing power for their operations due to robotics and similar innovations.
Panattoni’s Speedway project in the city’s East submarket is one of the most high-profile industrial developments in the market. Once a part of Nashville’s original Superspeedway, this 800 acre-project encompasses nine buildings currently. Worthy of note, the project started speculatively but has since welcomed industrial-using giants including Amazon, Geodis, CEVA Logistics and FedEx. This has spurred demand, and now seven more buildings are planned for an expansion. Grading is currently underway at the site.
Amazon continues to expand in Nashville, with a regional footprint of 9.8 million square feet. The company will occupy two 500,000-square-foot office towers at Nashville Yards in downtown Nashville, and it has a presence in multiple submarkets. Of note, Amazon opened its 3.6 million-square-foot, four-story fulfillment center this past summer in Mount Juliet. This project is estimated to have created 1,000 jobs in Wilson County.
Panattoni is also developing new buildings in CentrePointe Distribution Park in La Vergne, located in the Southeast submarket. Highpointe24 is a master-planned project comprising three 1.3 million-square-foot buildings on a 108-acre tract. This project is interesting not only because it is becoming increasingly rare to find a site that size in this high-demand submarket, but because of the topography. It is situated along a hill with interstate frontage on one of Nashville’s busiest interstate corridors.
Nashville topography outside of the core can be expensive for developers because it requires blasting through the area’s underlying limestone. This project will likely spur more activity and attract high-profile users to the area, injecting even more activity into that corridor.
The East and Southeast submarkets are where the bulk of the metro’s industrial inventory is located, due to ingress/egress, topography and interstate access. Over the last year, Wilson County in the East submarket has seen tremendous growth in industrial product.
The cost of land is favorably priced, being near the only major corridor heading east, and municipalities’ flexibility with industrial developers are driving factors for the submarket’s growth over the last few years. Speedway Industrial Park is another factor, infusing large bulk Class A distribution space in the submarket.
— By Katie Lester, Director of Research, Colliers Nashville. This article was originally published in the February 2022 issue of Southeast Real Estate Business.