Nashville Office Market Starts 2023 on a Strong Note

Office markets nationwide are still adapting to post-pandemic shifts, with major companies continuing to downsize and to rethink expansion plans. High interest rates and scarcer debt are also playing their part in a relative slowdown of office development. The Nashville office market had a strong position by the end of last year, as the metro’s favorable business climate has kept it growing.

Here is the latest report on how Nashville’s office market entered 2023, according to CommercialEdge data.

Downtown Nashville’s large projects

As of January, Nashville had 4.6 million square feet of rentable office space under construction. This represents an 8.0 percent expansion of existing stock, putting Nashville in the second spot nationally for new space underway as a percentage of stock, tied with Miami. Austin took the first spot, with new construction representing 10.3 percent of existing stock. Nationally, office space under construction amounted to 2.2 percent of stock in January.

Nashville’s top five largest office properties underway were all situated in the downtown area.

The $1 billion mixed-use Nashville Yards project—developed by Southwest Value Partners—contained two of the largest office buildings currently under construction. The larger one, at 566,000 square feet of rentable space, will be occupied by Amazon. The second one is planned to be mixed-use and is slated to comprise 465,000 square feet.

Lincoln Property Co. is also among the developers betting on downtown Nashville. The company is currently building a 535,000-square-foot luxury office building, located at 410 8th Ave. S., called Circle South.

In December, Convexity Properties obtained a $125 million loan for the development of a 15-story, 378,000-square-foot mixed-use project at 5 City Blvd. The property is slated to include 360,000 square feet of office space, 18,000 square feet of retail, and will come online in 2024.

Deliveries slowed down across Nashville

A single office property came online in the metro during the first two months of 2023, in the Franklin submarket. Boyle Investment Co. completed an office building—within the McEwen Northside master-planned community—measuring 126,000 square feet of office, and 15,000 square feet of retail and restaurant space.

In 2022, office completions across the Nashville market totaled 906,000 square feet—a 60.3 percent decline year-over-year, from the 2.3 million square feet of space delivered in 2021.

The largest of these was ONE22ONE, developed by a joint venture of GBT Realty and Koch Real Estate Investments. The 24-story, Class A building comprises 373,000 square feet of space, of which a significant portion was already leased. FirstBank signed on for 52,000 square feet of space, while an additional 120,000 square feet will be occupied by several other companies.

Office leasing in Nashville remained slow

Nashville’s office market recorded some leasing activity in 2022, but vacancy only moderately improved—the rate stood at 17.5 percent as of February, down 130 basis points year-over-year. Nationally, office vacancy clocked in at 16.5 percent.

The metro’s full-service equivalent listing rate was $31.6 as of February, up 4.1 percent year-over-year. Nationally, the rate stood at $38.3.

As companies continue to re-assess their post-pandemic needs for office space, leasing is still slow across most major metros. Layoffs in the tech sector especially contributed to this slowdown, with many expansion plans now on hold.

Sales went up in 2022

In 2022, transactions in Nashville’s office market totaled $1.3 billion, a 90.5 percent increase year-over-year. Sales amped up in the metro, with high-quality office space taking the first spot on investors’ lists. The average price per square foot reached $257 as of December, 4 percent higher than the national figure.

The largest sale of 2022 occurred in November. Northwood Investors paid $715 million for Fifth + Broadway, a mixed-use property that was completed in 2021 by Skanska USA and developed by Brookfield Properties. The asset includes 367,000 square feet of office space, 250,000 square feet of retail and entertainment, a 56,000-square-foot museum and 381 residential units.

Another large office sale closed in June, in the downtown submarket. Intercontinental Real Estate acquired the 1200 Broadway office tower for $295 million from Endeavor Real Estate Group. The 26-story property was completed in 2019 and is LEED Silver certified. The asset traded at roughly $344.6 per square foot, significantly above the market average.

Coworking gains traction in Nashville

As remote work gradually became more commonplace over the past three years, coworking companies sought to open locations in all major metros, and Nashville was no exception. As of February, the metro had 625,000 square feet of confirmed coworking space and 1.4 million square feet of allocated space across 69 locations—representing 2.4 percent of all rentable office space in the market.

By comparison, the largest coworking markets had similar figures—Manhattan’s office market had 13.4 million square feet of flexible space, representing 2.7 percent of all rentable office space, while Los Angeles had 6.9 million, or 2.3 percent.

Serendipity Labs opened its first location in Nashville last year. The coworking firm signed on for 21,100 square feet of office space at Tricera Capital’s L&C Tower, a 276,818-square-foot office building, located in the downtown submarket.

Miami-based flexible workspace provider Ampersand Studios also opened its first location in the metro last year. The company agreed to an 11-year, 26,124-square-foot lease at 1030 Music Row, a 126,000-square-foot boutique office property.