by Tom Hooper, Vice President, Nashville Leasing Office, JLL Tennessee
JLL just closed a new lease with a company that will be relocating from suburban Brentwood to downtown Nashville.
The lease with Jupiter Auto Insurance at Fifth Third Center is a prime example of the growing demand for Class A space in the Downtown and West End submarkets.
Fifth Third Center will provide Jupiter Insurance the high-quality space it needs to maximize efficiency while giving its employees access to all of the amenities downtown offers. Selecting office space in dynamic urban districts is part of the talent-retention strategy of more and more companies today, including Jupiter Insurance.
Office tenants increasingly want to be a part of the excitement and energy of downtown Nashville, with its array of restaurants, entertainment options and new multifamily projects. These amenities, which also include the planned amphitheater in West Riverfront Park, are popular with employees, particularly the younger “millennial” workforce.
As a result, demand is on the rise for Class A office space Downtown, as well as the adjacent West End. I’ve witnessed proof of this trend in the strong leasing activity at the 31-story, 490,276-square-foot Fifth Third Center, which JLL leases on behalf of landlord Amstar Group: The building’s vacancy rate is the lowest we’ve experienced in the past eight years.
And, as I said in a recent article in the Nashville Business Journal, the Metro Development and Housing Authority’s proposal to build a 1,156-space parking garage across the street from Fifth Third Center would further boost demand and be a huge win for downtown tenants.
But the big-picture story in Nashville is all about job growth – the sixth best in the nation last year – and the ongoing economic resurgence fueling demand for office space across the metro region.
The vacancy rate for Class A space dropped to 5.4 percent in the market as a whole in the first quarter, the lowest level in recent memory. The direct vacancy rate, which registered 9.9 percent in the first quarter, also continues to decline.
To be sure, the office sector has been on a roll, and I expect the favorable conditions to continue for the near term, thanks largely to Nashville’s white-hot economy.New construction remains limited, with two major new projects currently under development – the 205,000-square-foot Gulch Crossing building downtown and the 272,720-square foot Franklin Park building in Cool Springs.
Given the relatively slow pace of new construction and the ongoing economic growth in Nashville, I expect the office sector to continue tilting in favor of landlords, particularly for Class A space in the Downtown, West End, Brentwood and Cool Springs submarkets. Tenant improvement allowances will continue to shrink in most submarkets while rental rates climb.
Nashville’s office market and overall economy are definitely on the right track.
Learn more about Tom Hooper on his LinkedIn profile.