Vacancy rates continue to decline as Class A space is in high demand
Mid-year 2015 marks another historic low for vacancy rates in Nashville’s office market. Compared to 10.4 percent in the second quarter of 2014, overall market vacancy for the second quarter of 2015 finished at 7.5 percent, according to JLL’s new Nashville Office Insight Q2 2015 report. Class A vacancy rates have trended downward since 2010 and have fallen to 3.2 percent this quarter. Average rates across all classes sit at $22.20 per square foot, while Class A average rates pushed up to $25.49 per square foot in the second quarter. These are unprecedented conditions, and landlords are capitalizing on the imbalance in supply and demand. Occupiers seeking options are now forced to consider leasing decisions up to 12-18 months prior to their expirations.
Office leasing activity gains momentum for Class A construction projects
The only new delivery this quarter was Market Street’s Gulch Crossing in the Downtown submarket. The brand new Class A building includes 205,000 square feet and is almost fully leased. Office tenants include Raymond James, DTZ, The Bank of Nashville and the building’s architect, Earl Swensson Associates Inc. One Franklin Park, a 272,000 square-foot, Class A office building in Cool Springs, is expected to be full with the forthcoming addition of the financial services giant UBS.
“Even with these deliveries to the market, vacancy rates have continued to decline while Class A rates have continued to reach new heights,” said Tom Hooper, Executive Vice President of Office leasing in JLL’s Nashville office. “This demonstrates just how high demand is for quality office space in the market.”
Construction boom breaks records and positions economy for further growth
The building boom in Nashville is in full force with tower cranes visible in almost every direction. According to the Nashville Business Journal, the Metro government approved a record $2.43 billion worth of building permits for its 2014-2015 fiscal year – a 30 percent increase from the previous fiscal year. There is almost 2 million square feet of office buildings under construction, including 35 Music Square East and the first of the oneC1TY buildings on Charlotte Avenue – both estimated to deliver by year end. Spectrum | Emery announced this quarter that it will break ground in November on a second, 10-story office building, Two Franklin Park, in Cool Springs. Like One Franklin Park, which just opened, anywhere from 1,300 to 1,500 people could work inside. The Franklin Park development is among the nearly $2 billion building boom at the crossroads of Carothers Parkway and McEwen Drive in Cool Springs. The Ovation development, a $700 million, 147-acre project also at that intersection, is expected to announce tenants sometime this fall. Community Health Systems (CHS), a Franklin-based hospital chain, announced this quarter it plans to build a six-story, 240,000-square-foot shared services center to be built on 35 acres in Antioch in the airport south submarket. This is another example of substantial public-private investment into this burgeoning commercial area. According to The Tennessean, CHS, a JLL client, will invest $66 million and create 1,600 jobs over the next five years in Antioch.