Below is a Report on Office Property Sales in the Nashville area for the first quarter of 2020.  As you will see, the market for the first quarter was off a little from a historically good year in 2019 for office building sales, but still very good.  It was helped greatly by the sale of one property in the downtown submarket that shattered the price per square foot paid for a Nashville Office Building.

I hope you find this report interesting and informative!  Please contact me if you should have any questions.

Nashville Area Office Building Sales Report

Office Building Sales of over 10,000 SF in the Seven County Area of Middle TN- First Quarter 2020. Notes on the Sales (1/1/20-3/31/20).

  • $453 Million in Total Sales for the Quarter.
  • There were 21 total sales of office properties over 10,000 SF. The sale had to close in the quarter. Only pure office buildings are tracked. No flex properties are included.
  • Huge part of total sales figure (58%) for the seven county area was the sale of one Downtown property. The 222 2nd Ave S office property that sold for over $264 million to Starwood Real Estate Income Trust out of Miami, FL. That is $112 million more than the previous high for a Nashville area office building in the last twenty years. As reported in the Nashville Business Journal on 2/21/2020, the per square foot price of $728.6/Square Foot was also the highest ever paid for a large institutional size office property in the Nashville area. In fact, it was more than twice as much per square foot as any non-medical investment grade office building has sold for in Middle Tennessee. Reports are that the parking garage was a large contributor to this price. It is close to Ascend Amphitheater, Titans stadium and other downtown venues and is a cash cow for the building!
  • There was one other large sale of $80,365,000 which was a portfolio sale of three office buildings in Brentwood, Maryland Farms Office Park area. They are shown on a PDF link below as 5500 Maryland Way, 5200 Virginia Way and 5250 Virginia Way. The Seller was Northwestern Mutual Life Insurance Company which has been a major owner of commercial real estate in Middle TN for years. This was a 1031 Exchange Purchase. The Buyer is Vanderbilt Office Properties out of Chicago partnering with Nuveen, the investment arm of TIAA (Teachers Insurance and Annuity Association, a pension fund for teachers and others).
  • Below is a comparison of the first quarter of 2019 and 2020
    • 2019 – Total Sales – $535 Million. Number of Sales – 18. Average Months on the Market – 6.0
    • 2020 – Total Sales – $453 Million. Number of Sales – 21. Average Months on the Market – 6.1

Because the very large office sales can skew the numbers, I took out the sales of office properties that sold for $100 Million or more for 2019 and 2020. When I did that, the average price per square foot for office sales was $190/SF for the first quarter of 2019 and $188/SF for 2020. Of course, these are average figures with a LOT of variance in Class A and B and C properties. Outside of the 222 Building I talked about above, the range of sale prices in the first quarter was from $384/SF (Medical Office Bldg) to $43/SF (it would be very kind to label this a Class C property and location).

I also thought it would be interesting to show how the Nashville Office Market compares to the National Market in certain Categories. See the chart below that compares Nashville with National Averages:

Category

Nashville

National

Vacancy Rate

7.0% 

9.9% 

Market Rent/SF 

$28.22 

$34.37 

Annual Rent Growth 

3.4% 

2.0% 

Under Construction SF % of Inventory 

6.9% 

2.0% 

*Market Sale Price/SF 

$214.00 

$320.00 

Market Cap Rate 

7.1% 

6.9% 

Unemployment Rate 

2.7% 

3.7% 

Population Growth 

1.4% 

0.5% 

Median Household Income 

$69,045 

$64,787 

Median Household Income Growth 

3.3% 

3.3% 

 

Looking at these figures, you can easily see why Nashville has become a hot market for office investors. Vacancy Rates are lower, prices are substantially lower per square foot and yet cap rates are higher and annual rent growth is higher. Very good combination! That is why Costar reported that over two thirds of the money invested in Nashville office properties over the past year came from Buyers outside the state. For years Nashville was a second tier market for institutional buyers, but no longer. Costar also reported that Office properties provide the highest yields of any commercial property type in Nashville. In addition, the yields for Office properties here are better than for comparable cities such as Charlotte, NC and Austin, TX.

(*The Market Sale price is an average price per square foot for the previous twelve month period ending 3/31/2020. It is higher than the average price I gave above because it includes office bldg sales over $100 million.)

Comments: As you can see, the first quarter of 2020 is off a little from the same quarter of 2019, but 2019 was far and away the best year for office building sales in history for the Nashville, TN area. Of course, we do not know if any, or how many, sales were affected in this quarter by the Coronavirus. I would suspect that the office building sales were either completed, or so far underway by March, when the effects of the virus really kicked in, that it did not effect the results much. Next quarter may very well be different and it will be very interesting when the sales numbers for quarter two come in.

Click here to see the a PDF that includes pictures and info on every office building sale of over 10,000 SF in the Nashville MSA in the 1st Qtr of 2020. The buildings are listed by the highest to lowest sale price.

Hilton B. “Buck” Forcum, CCIM, SIOR

Information for this report was obtained from Costar