Nashville’s Vacancy Drops, Office Prices Remain High

Nashville’s office market had a consistent construction pipeline, with space under construction as a percentage of total stock outpacing the national rate, CommercialEdge data shows. The metro saw only two deliveries, while office investments showed a 31 percent year-over-year growth, placing Nashville among the best-performing metros.

Some notable office deals closed in the metro since the start of the year, while the high office prices pushed Nashville above some significant office markets in the South. Additionally, despite the growing vacancy rates trend across gateway and high-volume secondary markets, Nashville’s shows signs of improvement so far in 2024.

As of August, Nashville’s office market had 2.1 million square feet of space underway across nine properties, accounting for 3.6 percent of existing stock. The rate was way above the national figure of 1.0 percent as well as those recorded in most similar markets, such as Phoenix (0.4 percent), Houston (0.7 percent), Atlanta, (0.9 percent), Charlotte (1.5 percent), and San Diego (3.1 percent). Only Austin outperformed Nashville, with 4.1 percent.

Significant projects added to Nashville’s pipeline

In terms of space underway, Nashville outperformed Philadelphia’s (2 million square feet), Atlanta (1.9 million square feet), Houston’s (1.7 million square feet) and Charlotte’s (1.1 million square feet. The largest office project currently underway is the Pinnacle Tower at Nashville Yards, a 650,000-square-foot project that will rise 34 stories at 500 Platform Way, in downtown Nashville. The project, developed by Southwest Value Partners, broke ground in 2021 and is expected to come online in 2025.

In February, Equitable Property Co. purchased a 44-acre site for the development of a mixed-use project that will include two medical office buildings totaling 400,000 square feet, up to 250,000 square feet of retail space, a 240-key hotel and 75 townhomes. Phase I of the project dubbed Sewart’s Landing is taking shape in in Smyrna, Tenn., with delivery expected in the first quarter of 2025.

Year-to-date through August, developers broke ground on 352,000 square feet of space, while only 202,000 square feet of space was delivered across two properties.

Delivered properties include Educational Media Foundation’s new headquarters project, a 170,000-square-foot five-story office building at 2000 Reams Fleming Road in Franklin, Tenn., that came online in April, and The Office Lofts at Finery, a 49,000-square-foot six-story office building at 1 Merritt Ave., that opened in February. The property is part of The Finery mixed-use project, developed by Hines Interests.

As office inventories struggle with rising vacancy, owners are looking to offload assets, with residential conversion and emerging trend across the U.S. While Nashville is not among the nation’s top markets in regard to the conversion potential of its office inventory, there are some opportunities. The Conversion Feasibility Index, a new tool developed by CommercialEdge, shows what the top markets by with a strong chance of repurposing to residential space, based on property-level scores and buildings classification.

Growing office investments

There were 951,316 square feet of space across nine properties that traded for $195 million in Nashville through the first eight months of the year. The amount marked a 31 percent year-over-year growth, putting Nashville ahead of similar metros, such as Atlanta (29 percent) and Phoenix (26.7 percent), but lower than Charlotte (32.9 percent).

In terms of sales totals, the metro outperformed Orlando ($126 million) and Charlotte ($149 million), while Dallas led with $812 million, followed by Austin ($644 million).

Notable office deals in Nashville include the $84.5 million acquisition of Truist Plaza, a 338,000-square-foot office building at 401 Commerce St. The 13-story property was purchased in April by Menlo Equities from seller Eakin Partners.

Another significant deal was Boyle Investment Co.’s $48.8 million purchase of The McEwen Building, a 175,262-square-foot, seven-story office building in Franklin. The 2014-built asset changed hands from seller KBS and the deal was part of the buyer’s expansion strategy in the Cool Springs submarket.

Office assets in Nashville traded at an average sale price of $205 per square foot, above the national average of $173 per square foot. Nashville assets were pricier on average than in Houston ($103 per square foot), Dallas ($125 per square foot), Charlotte ($133 per square foot) and Atlanta ($146 per square foot), while Austin recorded stayed significantly more expensive, with prices at $376 per square foot.

Nashville’s office vacancy rates are dropping

Nashville’s office vacancy has been on a downward trajectory since the start of the year—from the 17.0 percent recorded in January, to 16.0 percent recorded in July. As of August, the metro’s office vacancy rate stood at 15.6 percent, down 60 basis points year-over-year. The figure was below the national figure of 19.4 percent, while similar metros recorded higher values, such as Orlando (16.8 percent), Charlotte (18.6 percent), Atlanta (21.3 percent) and Dallas (22.9 percent).

With limited leasing activity this year, Oracle’s relocation is the most significant leasing event. The Austin-based company plans to move its world headquarters to the city, having already secured a 65-acre site in the East Bank section in 2021.

The coworking sector holds steady

The coworking sector in Nashville featured 1.8 million square feet of coworking, outpacing Charlotte (1.3 million square feet) and Orlando (1.1 million square feet) but still a small footprint compared to Houston (4.3 million square feet).

Nashville’s coworking space as percentage of all leasable office space reached 3.2 percent as of August, one of the highest figures among similar markets and the national figure of 1.8 percent. The metro outperformed Austin (1.6 percent), Charlotte (1.7 percent) and Denver (2.2 percent), while Miami was the only metro outperforming Nashville with 3.7 percent.

The largest coworking space operator was Spaces, with 218,000 square feet in the metro. Espaces was second, with 217,212 square feet, Regus third, with 202,940 square feet, while Serendipity Lab and Expansive followed, with 90,662 square feet and 80,111 square feet, respectively.