“The industrial market sputters,” states Cassidy Turley in its second quarter report on the local market. However, adds this source, “We believe this is just a bump in the road and companies are holding off their real estate decisions to see what the future will bring.” Reis’ reporting on 98.2 million square feet of warehouse/distribution space registers both the setback and the optimism. More than 500,000 square feet of positive net absorption during the first quarter were followed by negative net 118,000 during the second quarter. July, however, promptly redeemed the latest quarter’s loss with a total of positive 266,000 square feet. Additional positive activity is anticipated overall for the remainder of the year.
All this to-and-fro, meanwhile, took place in the absence of new deliveries of competitive space. Sector vacancy ended the second quarter at 17.7%, up 10 basis points for the period, down 10 year-over-year. July’s strong performance subtracted 30 points from the rate. Warehouse/distribution space rents have recorded modest growth for about a year. At $3.42 psf and $3.22 psf, asking and effective averages for the latest quarter went unchanged from the quarter before and were up 0.3% each since year-end—on the heels of gains of 0.3% and 1.3% in 2011. July followed with increases of 0.3% for both rates.
Nashville’s attractiveness as a distribution center and to expanding companies has been amply reported over the years. The latest major coup for the industrial market came in the form of Amazon.com’s decision to build two major projects in the region. A 1.3-million-square-foot fulfillment center is under construction in southeast suburban Murfreesboro (Rutherford County). Cushman & Wakefield expects a fourth quarter 2012 completion. And the firm, now operating under a “short term lease” for 500,000 square feet in east suburban Lebanon (Wilson County), as described by the Nashville Business Journal in late July, will build a 1.0-million-square-foot distribution center in the same area. Substantial job creation is expected to result from the two projects. The firm’s expansion into Wilson County, moreover, “is expected to have a regional impact,” the Journal noted in August. Also under construction is another major project: the 1.2-million-square-foot Nissan Leaf Battery manufacturing plant is underway in Smyrna. Speculative development, however, remains at a virtual standstill. Reis’ early September report on individual construction projects reports no competitive industrial space of any description underway.
Major second quarter deals include a 200,000-square-foot lease (expansion by 80,000 square feet) by automotive parts manufacturer Sumitomo Electric Wiring Systems at Mason Road Distribution Center in southeast suburban LaVergne, according to the Journal. Intermetro Industries renewed for 275,000 square feet at the Elam Farms business park in Murfreesboro, reports Cushman & Wakefield. Vanderbilt Medical signed a new lease for 175,000 square feet of warehouse space at 825 6th Avenue, Nashville. And Cassidy Turley reports a 266,800-square-foot deal by Nissan at SouthPark B.
While enjoying a low 7.7% second quarter vacancy rate, Nashville’s small Flex/R&D market remains relatively inactive. Year-to-date net absorption through mid-year was 38,000 square feet, rent growth is flat and no space has been delivered since 2010—and none was under construction per report date.
The attractiveness of the Nashville area to expanding and relocating business was amply demonstrated by Amazon’s major move—and by a distribution center for Macy’s erected recently. In the competitive warehouse/distribution sector Reis expects net absorption at about 800,000 square feet all told this year. Vacancy should hold steady as construction increases. Gains at about 2.0% are projected for the mean asking and effective rents for the year.