Following healthy economic growth over the past year, Q4 2022 was a good period for the Nashville office space real estate market.
High positive absorption and growing rents indicate high demand and solid leasing activity, while the construction of several projects is on track for 2023 and beyond.
Vacancies are up this quarter, but Nashville’s high job growth is expected to draw new tenants for recently delivered properties.
Table of Contents
General Area Overview & Demographics
The largest city in Tennessee, Nashville, has a population of 715,913 as of 2023.
The median age is 34, and the median household income is $62,087. Nashville has a young population that drives its vibrant artistic and cultural scene.
Nashville has a humid subtropical climate, with humid, long summers and mild, wet winters. Storms are common during the spring, resulting in flash floods and tornadoes. Temperatures in the urban center are, on average, five degrees higher than outside the city.
Nashville is a global city, sometimes called the “Athens of the South” due to its educational institutions. The city has a strong economy and is home to a handful of Fortune 500 companies, such as Dollar General, HCA Healthcare, Tractor Supply, and Delek US Holdings.
Summary of Nashville Office Space Performance in Q4 2022
The Nashville office space real estate market showed marked improvement from last quarter, posting 273,653 square feet of net positive absorption. Absorption was heavily lopsided to high-quality Class A properties at 601,976 square feet, while absorption for Class B properties was 375,132 negative square feet.
Despite solid positive absorption, Nashville vacancy rates rose due to early-year occupancy losses and deliveries. Urban and suburban vacancy rates were 15.0% and 15.2%, respectively.
Submarkets with the highest vacancy rates were Airport South and Cool Springs at 21.1% and 20.3%, respectively. Vacancy rates for Class C properties were noticeably low at an average of 5.2%.
What Are Office Space Rents Like in Nashville?
Overall, office space leasing rates rose slightly from $31.75 in Q3 2022 to $31.80 in Q4 2022. The quarterly gains mark a 2.7% YOY increase.
Class A rent rose to $36.95 per square foot for a 5.8% YOY increase, and several A+ Class properties have rented over $40 per square foot. Average Class B and Class C rents were $27.40 and $24.09 per square foot, respectively.
The submarkets with the highest asking rates were West End, Green Hills, and Cool Springs at $38.97, $38.05, and $32.33 per square foot. Notably, properties delivered post-2015 showed 25% higher rents than office space delivered before 2015.
Purchase & Leasing Activity
Leasing activity reflects a major flight-to-quality as tenants flock to Class A and higher amenities, particularly those in fringe areas such as West End and Music Row. Leasing demand is strongest in areas with new deliveries.
Notable Office Space Deals in Nashville in Q4 2022
Nashville saw several noticeable lease transactions and sales in Q4 2022, including:
- Confidential’s 99,000 square foot least at 530 Great Circle Road;
- Delek US Energy Inc’s 56,141 square foot lease at Seven Springs II;
- Elmington Cosntruction’s 32,758 square foot lease expansion;
- A $244,810,904 sale of 372,000 square feet at Fifth + Broadway;
- A $13,350,000 sale of 57,252 square feet at 741 Cool Springs Boulevard; and,
- Surgery Partners’ 29,670 square foot sublease at Seven Springs West.
Many of these notable transactions were in the Green Hills and Cool Springs submarkets.
New Office Space Development Activity in Nashville Q4 2022
Nashville added 768,395 square feet of office space to its inventory across 2022, with 50% of the space preleased. There were three notable construction deliveries in Nashville in Q4 2022:
- 365,000 square feet at One 22 One in the Downtown submarket;
- 126,000 square feet at McEwen Northside Block A in the Cool Springs submarket; and,
- 165,400 square feet at 17th & Grand.
There is currently 2.7 million square feet of office space inventory under construction, including a 967,000-square-foot project for Southwest Value Partners at the Nashville Yards. Developers have another 5.3 million square feet of construction proposed but haven’t broken ground due to a lack of anchor tenants.
Below is a table with notable construction projects and their estimated delivery dates.
|Address||Square Footage||Est. Delivery|
|Moore Building||227,000||Q1 2023|
|Amazon II – Nashville Yards||580,000||Q2 2023|
|Pinnacle Tower – Nashville Yards||667,000||Q4 2024|
|Nashville Yards – Creative||300,000||Q3 2025|
Market Forecast for Nashville Office Space Market in 2023
Despite above-average vacancies across 2022, Nashville’s economic fundamentals are strong and are expected to keep the office space market on its current upward momentum.
As developers deliver new construction, we will see a more pronounced division between high-quality Class A properties with well above average rents and Class B and C properties with lower rents.
Nashville’s construction pipeline is poised with several projects to deliver across 2023, and future construction might be delayed if developers cannot find suitable anchor tenants for preleasing. Otherwise, the Nashville office space market is in good shape for the time being.
Takeaways for Office Space Investors
Office space investors in Nashville are in a good position to capitalize on growing demand by acquiring new Class A properties or performing capital improvements to older buildings to attract new tenants.
After sustained rental growth throughout the pandemic, a new class of tenants is used to paying higher rents. Although most new construction will be in suburban submarkets, slow development in urban submarkets means vacancy rates may rebound in 2023.
As always, stay vigilant, do your research, and happy investing!