Nashville, December 22, 2015 – Nashville stands out in 2015 with a vibrant economy and a good position for continued growth in 2016, according to CBRE Research’s 2016 Southeast U.S. Real Estate Market Outlook. Market conditions remain strong among all of Nashville’s commercial real estate sectors. Office, Industrial, Retail and Multifamily are seeing record-breaking numbers that are being driven by five years of economic expansion. Nashville provides high growth, affordability and a business-friendly environment; a combination that is accelerating economies throughout the Southeast. According to a CBRE investor survey, Nashville was tied at the 9th best metro in the U.S. for investing in 2015, a big jump from ranking 17th in the U.S. in 2014.
Office
Nashville’s popularity and diverse tenant demand strengthened the office market in 2015, pushing asking rents to a record high and vacancy to a record low. The most active sectors for leasing activity in 2015 were financial services, technology, creative industries and healthcare. New growth and high demand bring new construction. By the end of 2017, Nashville expects 5 million sq. ft. of office space to be delivered. The majority of the new construction is pre-leasing.
Accordingly, Nashville is poised to see additional investment activity among office assets as investors migrate from primary to secondary markets.
Industrial
Unlike many markets, Nashville’s manufacturing and distribution employment sectors experienced growth after the recession, a noticeable outlier in the shift towards modern manufacturing and warehousing. Because of this demand, vacancy has declined considerably over the last five years to hit a record low, prompting rising rental rates and significant new construction. The high demand for quality space and limited vacancy has amplified industrial lease rates. New speculative construction will apply more upward pressure to rental rates rising in the coming years as new buildings deliver. Answering for the demand, Nashville has approximately 4 million sq. ft. of construction on industrial products slated for next year and 2017.
Nashville’s centralized location in the country and state provides affordable transportation costs and an active hub for the distribution industry. Consequently, E-commerce activity is notable and expected to continuously grow in the next two years. Under Armour started their new 1 million sq. ft. distribution center in the market and with new build-to-suit facilities hitting the market, net absorption could exceed 6 million sq. ft. by 2018. Major industrial projects now underway include Beretta USA’s facility and SouthPark 24’s project. The introduction of new space into the market will provide adequate options for new and relocating distribution and supply related tenants, keeping Nashville competitive with regional peers such as Memphis, Indianapolis, Charlotte, Greenville-Spartanburg and Atlanta.
Nearly $399 million traded hands for both investment and owner-user purposes as of Q3 2015, positioning the market for an all-time high sales volume. A notable transaction during 2015 was the investment sale of a fully leased distribution warehouse that sold for $27.9 million.
Retail
Nashville’s retail market saw healthy growth in 2015 as several new national retailers moved into the market and numerous new restaurants opened in Nashville’s bustling neighborhoods. Nashville is also expected to gain an average 17,900 new residents each year for the next five years, establishing future demand for retail product. Nashville’s current construction boom is enabling trending retail growth in neighborhoods surrounding the urban core. Urban pockets like the Gulch, SoBro, Charlotte Avenue, and the Gulch are attracting retailers with their live, work, play lifestyle. Asking lease rates are anticipated to rise for the next two years with tenant demand pushing rents to a possible $30 per sq. ft. on a triple net bases by year-end 2017.
The attractive retail market has drawn out-of-state investors to the market as they acquire assets for higher cap rates in the Southeast creating an overall greater return on their investment. Grocery-anchored assets are becoming increasingly more rare with urban retail trends, thus making them more appealing to investors. With stable grocers such as Publix and Kroger, suburban markets will continue to appeal to institutional investors through 2016.
Multifamily
Nashville is maintaining its status as one of the country’s hottest markets for apartment investment. Young professionals are flocking to the city, driving strong rental demand and an investor’s dream. Rental market fundamentals continue their climb reaching record levels. Rents are increasing, rising by an average of nearly 30% over the past five years. Average rent is predicted to grow at an annual rate of 3.2% over the next five years. The vacancy rate is expected to decline modestly over the next five years – a positive sign for owners and investors of multifamily.
Apartment construction activity appears to be peaking, with approximately 14,000 units under construction across all 10 submarkets. An expected 8,500 units will be delivered in 2016. Hot spots for new supply continue to be focused on the infill neighborhoods of West End, Germantown and Music Row where walkability and access to amenities is the key factor.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
