Developers in Nashville are responding to a strong local economy and favorable demographic trends by building more offices. As a result, office construction in the Nashville region ranks first among all major metropolitan areas in the U.S. as a percent of existing inventory, according to CoStar data.
More than 6.5 million square feet of space is currently under construction, and most of that activity is centered in the downtown area. And more than 60% of that space is still available for lease.
Major projects such as Gulch Union and Peabody Plaza are projected to add more than half-a-million square feet of space in the coming year. Construction is continuing even though both have yet to lease. Additionally, the mixed-use Nashville Yards development is preparing to deliver nearly 3.5 million square feet. While Amazon has pledged to take nearly one-third of that, the remaining space is likely to command market-leading prices.
Adding to the pipeline, GBT Realty recently unveiled renderings for its new speculative office tower on Broadway Street, which is moving ahead without any completed preleasing. Slated to break ground later this year, One22One will add another 375,000 square feet to downtown Nashville’s office inventory by 2022.
With supply projected to grow by 3% in each of the next three years, some are beginning to ask if the market is can support such an influx of new space.
Sustained economic success coming out of the Great Recession has made Nashville one of the hottest markets in the country. Office-using employment has grown by 60 percent since 2010, compared to the national average of closer to 20 percent. Even though tenants are becoming more efficient with space, office fundamentals have strengthened in response to the city’s strong economic climate.
Vacancies remain lower than Nashville’s historic average thanks to strong demand from both national and local firms. Additionally, rents continue to grow at a pace well above the national average: Across Nashville, rents have grown by 3% over the past 12 months, and annual gains are even larger for newer, Class A properties in the market, according to CoStar Market Analytics.
Demand has remained strong in the face of heightened development. Since 2014, Nashville has averaged nearly 1.5 million square feet of annual net absorption. Additionally, several major companies have recently moved into speculative office developments in the city. Both investment management firm AllianceBernstein and professional services giant EY moved into buildings that were already under construction, but lacked an anchor tenant prior to development.
While industry analysts say Nashville’s fundamentals will likely soften in the near term as these properties come online, the region is well positioned to absorb the influx of new office space in the long term.
This article originated from CoStar