Nashville’s office market showed continuing strength in the first quarter of the year, helping the city remain steady as big markets across the country are beginning to struggle with the economy.
Vacancy across the approximately 29 million square feet of office space ranges from 8-10 percent, depending on which firm is doing the count. Asking rents have increased, especially on the highest-end space, which continues to remain the tightest segment.
According to brokers, Music City’s office real estate so far is contrary to the broader economy.
“I see most people expanding not contracting,” said Barry Smith, president of Eakin Partners.
Tom Frye, managing director of CB Richard Ellis in Nashville, added that at the national level, “the market savvy guys are saying that 10 percent (vacancy) is zero, nothing.”
West End, Brentwood and Cools Springs have about 5 percent vacancy or lower. The market absorbed about 400,000 square feet of office space in the first quarter. Frye said an average year is 750,000 in the positive for leasing.
A large portion of the first quarter number came with the opening of SunTrust Plaza downtown and Stites & Harbison and SunTrust Bank moved into the new space. SunTrust Plaza shuffled downtown tenants but they leased more space than they emptied.
That empty space pushed downtown vacancy to 10-12 percent. Brokers say there’s an upside to the shuffling of downtown tenants — contiguous space. The complaint for a long while is that there was plenty of empty space downtown yet little of it was contiguous.
Now, such space exists, leaving parking as the issue to overcome.
Nick Minadeo, research director for Colliers Turley Martin Tucker, sounded cautionary about the office market prospects later in the year. He said the industrial market has slowed and the office market could follow.
“There’s usually a nine-month swing between office and industrial,” Minadeo said.
If industrial continues to slow, he said the office market could feel it in the fourth quarter. In first quarter, more space went dark than was leased. There’s also about 3 million square feet under construction.
“If industrial can bounce back next quarter, the office may not slow,” Minadeo said.
Frye noted, though, the industrial leasing could be positive 2.5 million this year, which would be a solid year. He added that the first quarter may be an anomaly.
“On paper, it’s going to be a blockbuster year,” Fry said of the market.
He and others said there isn’t much activity, particularly among small tenants. Brokers are counting on the possibility that some big tenants begin to land and make deals.