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Nashville’s commercial real estate market accelerated in 2013 as both lease and sales activity reached pre-recessionary levels. A number of new development projects were announced to account for the tightening vacancy as Nashville’s economy progressed with lower unemployment than the U.S. average.
It was a big year all around in 2013 as Nashville was nationally praised for its fast-growing suburbs, new businesses and careers and the much hyped up-and-coming culinary scene. Furthermore, Nashville made a solid case for its newest accolade as one of the ‘Top Markets to Watch’, by the Urban Land Institute.
The city’s economy proved to be resilient and competitive with low unemployment and new businesses entering the market. November 2013 recorded 5.8 percent unemployment in Davidson County, 1.2 percent less than the national average.
Low Vacancy
Nashville retail is currently experiencing its lowest vacancy in years. At the end of 2013, the overall vacancy rate dropped to 7.8 percent, down from last year’s year-end vacancy rate of 8.3 percent. At the peak of the recession in 2010, Nashville recorded a retail vacancy rate of 10 percent. The recent improvement trend over the past two years is a result of the city’s low unemployment numbers and business-friendly incentives making it easier for retailers and other small business owners to thrive. This thriving retail environment has created opportunities within the investment sector as well.
Several large investment sales were completed in 2013, the largest of which included The Avenue in Murfreesboro. The Avenue is a lifestyle center, which consists of 14 retail properties. The 747,000-square-foot retail center sold for $163 million and includes such tenants as Best Buy, Dick’s Sporting Goods and Victoria’s Secret. High interest from investment entities wasn’t just a result of low vacancy. Retail rents continued to creep upwards in 2013, and this trend is projected to carry on into 2014.
In 2014, rental growth will continue to rise as vacant space continues to decrease. Since 2009, the overall asking rental rate increased by approximately $2 per square foot. The current average rental rate is $15 per square foot and projected to increase by $2 to $3 per square foot in 2014 and 2015. Retail space in proposed and under construction buildings has been quoted as high as $45 per square foot.
Urban Nashville
Nashville’s new convention center, The Music City Center, is on track to act as a major stimulator for retail demand and residential growth in downtown Nashville. The $585 million, 1.2 million-square-foot convention center complex opened its doors in May 2013 and has since housed more than 175 events in 2013 and already booked 200 events for 2014. As a result, the projected influx of tourists, convention goers and new residents to the downtown core will create an entirely new landscape that will usher in a new dynamic in the city’s core.
The Music City Center was a catalyst for new hotel development in both downtown and midtown, including an 800-room Omni Hotel which opened in August 2013. Announcements for a new Hyatt Place hotel, Hilton Garden Inn and Fairfield Inn & Suites soon followed the Music City Center’s groundbreaking. Several proposed boutique hotels are also in downtown Nashville’s pipeline.
Simultaneously, almost 20 multifamily projects are proposed or currently under construction near downtown Nashville to meet the growing demand for a downtown lifestyle.
At the end of third quarter 2013, there were 19 apartment projects totaling 4,343 units under construction in Nashville. Since the first of the year, Nashville’s multifamily market has grown by 2,558 units, a growth rate of 2.2 percent, which ranks Nashville sixth in the United States with multifamily growth. Several of these apartment projects in metro Nashville added ground-level retail space including the 331-unit Ellison 23, which featured 15,000 square feet of retail space.
As downtown Nashville grows, fringe areas like The Gulch have acted as very successful test cases in the city’s mission to create more options for urban living, retail and dining downtown. With six high-rise multifamily developments, 20-plus retailers and more than 30 bars and restaurants, The Gulch has become one of Nashville’s go-to neighborhoods for retailers looking to occupy urban space. Currently one multifamily project and one Class A office development are under construction. The office property will also feature 19,000 square feet of retail space.
In the downtown core, new interest from apparel retailers is now competing with the typical bars and restaurants for space that come on line. American designers Manual and Bettie Page opened stores on lower Broadway amongst Nashville’s legendary honky-tonks in 2013. There is a great demand for retail space downtown but few space options to pursue, thus translating to only 4 percent vacancy and some of the highest retail rents in the market.
Suburban Nashville
Moving away from Nashville proper, Brentwood and Cool Springs/Franklin are Nashville’s most affluent suburban areas and home to an abundance of retailers and major companies including Community Health Systems, Healthways and Nissan North America just to name a few. With a very high quality of life, above average annual income and an exceptional public school system, Williamson County has become the hub for the high quality suburban lifestyle in the Nashville market. In 2013, AOL Real Estate named Brentwood one of the 10 fastest-growing suburbs in America. Cool Springs’ retail availability is tight and competitive, ending 2013 with a vacancy rate of 5 percent and an average rental rate of $19.16 per square foot. Since CoolSprings Galleria opened in 1991, retail in Cool Springs has grown tremendously around the shopping mall.
In late 2013, the CoolSprings Galleria announced a major expansion project expected to commence in February 2014. The three-phase development will begin with a 3,000-square-foot addition to the Sears store. The second phase of the project will add a 53,000 square foot lifestyles center, The District, and the final phase will add two new retail areas with 10,000 square feet of space near Macy’s. With inventory at max capacity and no more developable land in Cool Springs, the high demand and low vacancy will likely translate to increased rents in the future.
— By Kelsey Morgan, director of research, Colliers International. The article originally appeared in the February 2014 issue of Southeast Real Estate Business magazine.