Industrial market treading water heading into second half

Monday, July 14, 2008 at 3:07am
Industrial property is stagnant throughout the region, though Nashville’s 8.8 percent vacancy rate is significantly better than Memphis (17 percent) and Wilson County (21.7 percent). Matthew Williams/File/The City Paper

The Nashville area’s industrial property market heads into the second half of 2008 at a stagnant pace. The region’s vacancy rate didn’t change much during the second quarter as the amounts of space leased and emptied were about even.

Warehouse and distribution space leasing tends to be more sensitive to broader economic conditions than office and retail space. Brokers said the rising cost of fuel is having an impact as is the stock market and the presidential election.

“The cost of moving goods has been a factor in delaying decisions,” Bill Hawkins of Chas. Hawkins Co. said of potential tenants. “In general, even though it’s a little slower, we are still getting some deals done. I think people just pulled their belts one notch tighter.”

Ron Colter, who heads up industrial leasing for Crescent Resources, said everyone is concerned right now.

“There’s no magic answer,” Colter said.

Nashville Commercial/Cushman &Wakefield clocked industrial vacancy at 8.8 percent at June 30. CB Richard Ellis has that number closer to 8 percent. So far this year, about 2.1 million square feet of industrial space has been leased across Middle Tennessee.

Wilson County has the highest vacancy rate at 21.7 percent, according to Nashville Commercial. But the county has the most space under construction and where most of the new space has been built.

Brokers say, however, that Nashville is much better off than Memphis, where industrial real estate has vacancy of nearly 17 percent. Over the past five years, Nashville’s distribution market has become competitive with Memphis, although local lease rates are higher by roughly 60 cents per square foot.

Now, Hawkins said, “you would not want to have a warehouse in Memphis.”

CB Richard Ellis had earlier projected net absorption of 2.5 million square feet for this year.

“Unless something big happens, we aren’t going to hit the numbers we forecast,” said Tom Frye, the firm’s managing director in Nashville.

But brokers say there are big potential users scouting the Nashville area. If they land here this year, the industrial market could rebound quickly. Frye said the upside to having an inventory of warehouse space is that it makes landing such prospects easier. Especially these days, companies looking for warehouse space tend to want the space quickly.

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Filed under: City Business
By: girliegirl on 12/31/69 at 6:00

Those of us who predicted the current situation of fuel costs out-pacing the economy have always touted the practice of combining industrial with residential in a much more dense fashion than the current trend. Fact is, as fuel costs increase, consumers will drive less distances by choice, even if that means a career change. "New Urbanism" has potential in outlying areas. Like most consumers, I'm not willing to drive 30 miles to a mall anymore. It's just a matter of principle I guess. Somehow, sending billions of $$ to OPEC just doesn't appeal to me.

By: dnewton on 12/31/69 at 6:00

I feel sorry for anyone trying to unload industrial real estate when the state is promoting the expansion of the same by the square mile. There was nearly three square miles added to the inventory on 98.5 square miles in the first half of this year. County governments around the state are spendiung about $34 million per year on industrial development even though the number of industrial jobs shrinks every year by about 2.28 percent. Next year the number of government jobs, including teachers, could equal or be greater than all of the industrial jobs in the state. The state of Tennessee allows condemnation of private property for industrial development and the definition of industrial is evolving to include prisons, motels, parking garages, schools, or any other commercial activity. The average real industry only spends about 4% of total product price on capital spending and therefore does not need a lot of help with capital expenses. What it really needs is help with people or labor expenses. If the government really wants to help industrial development it would try to keep the cost of government down to a level that would compete with other areas of the nation. It would also not tolerate low performance of the schools.