SOUTHEAST SNAPSHOT, AUGUST 2008

Nashville Industrial Market

The Nashville industrial market is not off to a record start like the latest Batman movie, but it is seeing an increase in the number and size of users looking to start operations in the third quarter. Two million square feet of leases are possible in the next few months if companies looking for 100,000 to 800,000 square feet solutions to their distribution network commit to space. This could be the best quarter in nearly 2 years.

In the Southeast SUBmarket, the George P. Johnson Company leased 300,000 square feet at Crescent Resources Centre Point 7 building. The Nissan supplier required significant buildout as well as a location near the Nissan plant in Smyrna, Tenn., and Nissan’s new corporate headquarters in Cool Springs, Tenn. B&G Foods leased 250,000 square feet at Dividend Capitals’ Logistics Way Development leaving 320,000 square feet available. They relocated from 175,000 square feet at Techpark 24, only 3 miles away. Coca-Cola subleased 129,000 square feet from Cardinal Health at Mid South Logistics Center 5.

Two new projects have come online this spring in the Southeast submarket. Prologis just completed a 288,000 square foot rear load building in Interchange City, Tenn., and Magnolia Development finished a 117,000-square-foot rear loader that fronts on Interstate 24.

In the East submarket, State Road 840 has continued to attract construction starts and completions. Versus Partners’ 436,800-square-foot 840 business center and IDI’s 556,000-square-foot Wilson Commerce Center were both completed. The 700,000-square-foot Couchville Pike Business Center, developed by OPUS, has walls going up and First Industrial’s Rockdale III, 300,000-square-foot crossdock is in shell-ready condition.

Jacobson Logistics leased 135,000 square feet in Panattoni’s Commerce Farms latest building and Ozburn-Hessey Logistics has leased 100,000 square feet in Duke Realty’s Park 840. Duke is also building 456,000 square feet for Leviton at Park 840 and plans to start construction on another building after the balance of their Building 653 is leased.

What will be the biggest driver of activity for the balance of the year?  Will diesel and transportation cost increases jolt manufacturers and distributors into analyzing their distribution network to determine how to minimize the overall cost of getting their products to their customer’s customer?  Or will the malaise and uncertainty of a presidential race without an incumbent cause companies to delay making strategic decisions before November 4th? Will inflation drive consumers who live daily with the volatile increase in food and energy costs out of the stores, thereby temporarily increasing inventories as containers already on the water hit the ports?

The Number 1 driver will be transportation costs. Inbound and outbound transportation costs account for more than 70 percent of the total landed cost of the supply chain network. As diesel prices rise, transportation costs will increase dramatically, causing increased inflation. Companies are already re-engineering their distribution networks to minimize the impact of surging transportation costs. After all, in most of the markets Nashville competes with, there is downward pressure on lease rates and labor costs are stable. Recent results of network modeling have resulted in companies increasing their number of facilities from three to five 500,000-square-foot distribution centers to five to seven 300,000-square-foot facilities.

Within a 250 mile radius of Nashville, you can reach about 23.9 million consumers, and within 500 miles, you can serve more than 98 million consumers. This ranks Nashville in the top 10 cities with the ability to reach consumer groups within 1 day’s delivery by truck. This ability to serve manufacturers and distributors’ customer’s customer quickly will continue to attract users to Nashville as companies look to reduce their outbound costs.

— Randy Wolcott is a senior vice president for Nashville-based ProVenture Commercial Real Estate.

©2008 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.