Paul Gaither and Mia Hill, CBRE
In 2014, approximately 53 restaurants opened, most notably Chauhan Ale and Masala House, Sinema, Prima, Acme Feed & Seed, Adele’s, City Winery, Two Ten Jack, Moto Cucina + Enoteca, Epice and Party Foul. Most of these landed in hot neighborhoods — The Gulch, East Nashville, 12th South, SoBro and Germantown.
Nationally and locally we’re seeing demand for grocery-anchored retail. Demand has outstripped supply by a long shot. Major grocers own much of their real estate, and Publix followed suit in 2014, acquiring some centers it anchors, leaving fewer investor opportunities that will drive pricing and also move some investors into opportunities anchored by regional or independent grocers, or shadow-anchored assets.
We actually expect non-retail projects to change the dynamic in Nashville in 2015. Within the Downtown loop, retail was non-existent, but with 1,000 new hotel rooms, 2,493 residential units and several new office projects under construction, bringing 5,000 more workers downtown, retail will follow. The $232.6 million Highwoods development for Bridgestone’s U.S. headquarters alone brings a 514,000-square-foot, 30-story tower to SoBro, which is significant for Nashville because it competed with Atlanta and Chicago to become the destination for Bridgestone’s U.S. headquarters, further creating demand for retail.
Following suit is HCA with its subsidiaries’ — Parallon Business Solutions and Sarah Cannon — headquarters to be developed on 11 acres with a completion scheduled for fall 2016.
Parallon and Sarah Cannon will both be part of a larger project called Capitol View, sure to be a game-changer. The 32-acre mixed-use development in the North Gulch area is strategically located near the Central Business District, SoBro, Vanderbilt University and First Tennessee Park, the new Nashville Sounds ballpark, scheduled to open April 17, 2015. Capitol View will consist of approximately 1 million square feet of office, 312,000 square feet of retail, two hotels, a 100,000-square-foot conference center, 1,065 multifamily units, urban park space and jogging and biking trails that connect to the Nashville Greenway.
Additionally, the planned redevelopment of the old Nashville Convention Center on Broadway will add additional retail as well as create retail demand. The project plans include approximately 300,000 square feet of office, 180,000 square feet of retail, a 40,000-square-foot National Museum of African American Music, a 35,000-square-foot entertainment venue, 350 apartment units and a modern conference center.
The larger Nashville metro area will also see several new mixed-use development projects, most notably Ovation, located in Cool Springs. The project, which broke ground in October 2014, includes approximately 1.4 million square feet of office, 350,000 square feet of retail, a full-service hotel and residential. Ovation will bring a fresh wave of luxury retail in an urban-feeling-environment to Cool Springs.
Approximately 13 miles southeast of downtown in Antioch, developers are planning the Cane Ridge Road Project, a 300-acre mixed-use development. This project hinges on zoning and completion of the Hickory Hollow Parkway interchange, but developers plan for multifamily and single-family homes, parks, a town center, office space, hotel and retail. The developers have been actively involved with the Antioch community in order to create a one-of-a-kind development for the users and residents.
The growth of unique retail options in Nashville and surrounding submarkets has caught investors’ attention. The city is a target for virtually every capital source interested in retail assets, which is a new trend as Nashville has grown, diversified its economy and elevated its status nationally. Institutional investors are looking for grocery-anchored or Class A assets. Interest in value-add assets remains strong across the spectrum as well.
We witnessed several grocery-anchored sales last year, primarily to institutional buyers. Nine Publix-anchored centers in Middle Tennessee sold, with Publix acquiring four of those.
Investors find Nashville particularly appealing because of its strong fundamentals, growth prospects and moderate pricing when compared to tier-one markets. With Nashville’s economic growth, existing retail space has been absorbed, with occupancy rates now around 92 percent. The development pipeline lags this increase in demand, so rents increased in 2014 from an average of $13.68 per square foot to $13.92 per square foot today.
The Nashville region offers specific advantages for businesses and individuals alike, with operation costs and the cost of living 10 percent below the U.S. average, no personal income tax, a prominent healthcare industry, highly skilled workforce, 21 four-year educational institutions, an excellent geographical location, seasonal climate, creative and diverse culture and an abundance of waterways and parks. These advantages have shaped the region, becoming the destination for corporate headquarters to companies such as Nissan North America, Bridgestone Americas, HCA, Dollar General, Asurion, Caterpillar Financial and Louisiana Pacific (to name a few). The influx of jobs, residents, and tourists will continue to boost Nashville’s need for retail and we feel we are privileged to watch it progress.
— By Paul Gaither, Senior Vice President, CBRE, and Mia Hill, Sales Assistant, CBRE. This article originally appeared in the February 2015 issue of Southeast Real Estate Business.