Q2 2017 Industrial outlook exceeds expectations like the Predators

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Market fundamentals in Smashville are still neck and neck with some of the hottest markets in the country. Midway through the year, rental rate growth has stayed strong; however, vacancy has marginally begun to rise. Rental rates grew to $4.68 per square foot. Meanwhile, vacancy rose 10 basis points to 4.1 percent. With vacancy and rents at a respective 2.5 percent increase and 4.8 percent growth since Q1, Nashville’s industrial cycle continues to exceed expectations.

Nashville Industrial Topline:

  • Overall average rent grew 4.8 percent, landing at $4.68 per square foot.
  • Leasing activity continues to be the highest in the Southeast submarket and is picking up in the submarkets closest to the core (namely: East, North and IBD).
  • Speculative development is trending upwards – as are smaller footprints.

Landlords have sensed increased activity this cycle and responded with substantial development. Speculative development this cycle – and even more notably this year – is blazing. 1.3 million square feet of speculative development delivered this quarter – 54 percent of which was pre-leased. Another 3.2 million square feet – 2.2 million square feet of which is speculative development – will deliver over the next 18 months. The most notable shift at this point in the development cycle is that rental rates now justify construction of smaller footprints, enabling them to cater to a different tenant profile. As we noted in Q2 2016, there was a supply gap in the 20,000-50,000 square-foot range. Currently, there are eight buildings that are able to accommodate requirements of this size – all set to deliver by year-end. There are another 12 buildings in this size range in the pipeline.

Outlook

Smashville remains a landlord favorable market. Rent growth and demand for Nashville are strong. By Q4 2017, 4.3 million square feet (86.2 percent of which are speculative developments) are expected to deliver. Demand has kept pace with speculative projects. Additionally, rent growth is giving developers the offensive position to build footprints of smaller sizes. The outlook for 2017 continues to indicate substantial tenant appetite and developer intention to bring new product to market.

For more information, contact the Nashville JLL research department.

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