Space race. “Nashville’s office space race is on,” states an August report in the Nashville Business Journal. “After the recession pushed pause on new development, a number of Nashville-area office projects now stand ready in the wings.” “The question remains,” notes Cassidy Turley Commercial Real Estate Services, “when will developers build?” Citing low vacancy and strong demand, this source expects to see the near-term return of speculative development to the popular south suburban Cool Springs area “in the next few quarters.” Indeed, the vacancy number overall seems favorable. Reis put the second quarter metro area rate at 13.3%, down 10 basis points for the period, down 70 year-over-year and the lowest recorded since the third quarter of 2009.
The dearth of recent construction alongside recent favorable net absorption underpins the declining vacancy curve. Thus with no new space delivering through the first half of 2012 net absorption was 113,000 square feet. A positive 51,000 square feet all told in 2011 also were accompanied by no additions to supply. A modest negative turn on the order of 22,000 square feet in July will be followed by additional positive activity in the months following. Rent growth, reflecting these favorable trends, has been running positive in the recent term, albeit at a modest pace. Reis put second quarter asking and effective averages at $20.11 psf and $15.69 psf, up 0.1% each for the period, up 0.4% and 0.6% since year-end. July followed with no additional changes.
The latest news on the leasing front, meanwhile, includes the decision by Regions Financial Corporation, Nashville’s largest bank, to occupy 42,000 square feet in the spring of 2013 in downtown’s One Nashville Place tower at 4th Avenue and Commerce Street, the Journal reported in late September. The “complex” deal, requiring space evacuations elsewhere downtown, had not been finalized per the date of the report “but is expected to be close soon.” In addition, Boyle Investment Company has announced the first group of tenants that will occupy 27% of its new 5000 Meridian building in Cool Springs, reports Cushman & Wakefield. The 150,000-square-foot building completed this September, Reis reports.
Two other competitive general purpose projects with a combined total of 90,000 square feet delivered year-to-date in 2012. The largest, the 75,000- square-foot Health Spring, finished in May in MetroCenter Nashville. Per the date of this report, 120,000 square feet were underway metrowide in two competitive projects. In addition, an October start is scheduled for the 200,000-square-foot first phase of the Thompson Station Market Center mixed-use development in Franklin. A 150,000-square-foot second phase is planned. A survey of local real estate professionals conducted by the Journal in August, meanwhile, expects Spectrum Properties/Emery’s Franklin Park development in Cool Springs will be the first new office building to break ground. Plans call for “a 71-acre, master-planned campus with up to five 10-story office buildings, shops and an apartment building.” Reis reports five 300,000-square-foot phases proposed for the Franklin Park project.
The year’s near-270,000 square feet of new supply will be met by roughly equivalent net absorption, Reis expects. Vacancy is expected to close the year at 13.5%. Gains of 1.1% and 1.2% are projected for the mean asking and effective rents for the year. Additional improvement is expected for 2013.