Compared to the rest of the country, Nashville’s office vacancy remains the lowest in the country. However, for the first time in six quarters, office vacancy has begun to increase. At the end of Q4, office vacancy sits at 6.2 percent overall compared to last quarter’s 4.6 percent. Class A and B space saw an increase in office vacancy, while Class C decreased. Class A space increased the most from 6.3 percent in Q3 to 8.5 percent in Q4. Despite an increase in supply, the increasing demand in the office market has contributed to rental rates climbing. Overall rent landed at $23.59. With rental rates this high, Nashville has surpassed some hot topic cities. Nashville’s construction pipeline is heftier than most.
“It was another strong year of low vacancy in the Nashville office market. ” said Tom Hooper, Executive Vice President at JLL Nashville. “With new developments completing this year, we expect to see vacancy rates creep up slightly, ”
While Nashville has received a number of corporate relocations, in-market growth accounts for the majority of the absorption in the market. Over the past 24 months, 300 plus deals (new deals, renewals, expansions, and subleases) have been executed. 57.2 percent had a growing footprint. 40.0 percent had a stable footprint and 2.8 percent have shrinking footprints. Of those growing footprint deals, 18.0 percent were new to market and 82.0 percent were already in the market. In-market growth accounts for roughly 2.6 million square feet, compared to new to market growth contributing well over 500,000 square feet.
2016 building deliveries hit a 16-year high, construction activity is solid, and interest in Nashville remains sound. 10 buildings delivered in 2016, totaling 1.5 million square feet. All buildings came to market 78.4 percent preleased with an average asking rate of $32.28. Another 2.7 million square feet is under construction with an even higher average asking rate of $34.33. Despite higher than average rates, product is already 74.7 percent preleased. The big question is: what about the backfill space?
As tenants relocate from second generation space, existing space is being backfilled at a health pace. Nonetheless, there will be a subtle increase in vacancy. Even with the decrease in market occupancy, Nashville will continue to be the most occupied market in the country. New development projects, scheduled to enter the Nashville market, will include the recently-announced The Landings at River North, a 40-acre site comprised of office, retail, residential, and hospitality spaces.
Below is a preview of our findings, to read the full report, click here: Nashville Office Outlook Q4 2016