Brentwood/Cool Springs (Nashville) Office Market
by Crews Johnston III

The rise of sublease space in the first quarter is certainly the central story for the start of the year in the suburban areas of Nashville, according to Crews Johnston, president of Mission Property Company in Nashville. Industry consolidation, more than the dot-com implosion, he says, has accounted for this surplus. “This occurrence, compiled with typical speculative building growth and a slowdown in absorption trends, has certainly scared the market watchers.” Of course, if recent history is any guide, the steadiness of suburban Nashville’s overall absorption should calm the market and by years end, the space should lease and the anxiety will subside, he adds.

In a banner year of projects, Hines’ 300,000-square-foot West End/Vanderbilt mixed-use project was clearly the most significant delivery of 2000. Other significant deliveries include Highwoods Properties’ Caterpillar Financial Plaza (330,000 square feet), Gaedeke Landers’s Highland Ridge Tower (300,000 square feet), and a number of other 100,000- to 150,000-square-foot buildings. The result was mixed as the stronger submarkets of West End and Cool Springs leased up quickly, while the Airport has struggled. In the Brentwood/Cool Springs submarket, most buildings will remain in the 100,000- to 150,000-square-foot range, lowering the risk on these projects. In Cool Springs, Crescent Resources continues to build out its franchise Corporate Center development, which together with the lease up of the last remaining tracts in Maryland Farms, leaves little land for development in Brentwood. “Hence, most of the future growth will come in pockets in Maryland Farms and the Cool Springs market. These factors should help squeeze supply and push rents upward in the next 3 to 5 years,” says Johnston.

A healthy delivery of approximately 800,000 square feet of spec space for 2001 in these markets should keep up with the demand in the market, according to Johnston. “The sublease bogey mentioned earlier will be the real wild card,” he says.

The primary developers in the suburban Nashville area are Highwoods, Crescent Resources and Duke Realty Corp., which for the past 5 years have accounted for 75 to 80 percent of the development. Johnston says that occasionally a local developer like John Cooper with Park Center Partnership will deliver a project such as the 200,000-square-foot Park Center Buildings in Maryland Farms.

There is no major tenant absorbing a majority of space in the Brentwood/ Cool Springs area. “A diverse base of healthcare, financial services, technology and other services have long been a strength of Nashville’s economy and this submarket,” says Johnston.

Major leases that have been closed recently include 58,000 square feet by Lattimore Black Morgan and Cain at Park Center II on Virginia Way, 35,000 square feet by INPHACT at Virginia Way Plaza on Virginia Way, and 96,500 square feet by Gambro Healthcare at Park Center I on Virginia Way

Class A rental rates range from $18.50 to $19.50 R.S.F. full service in Brentwood/Cool Springs; $21 to $23 R.S.F. full service in West End; and $19 to $22 R.S.F. full service in the Airport submarket. Vacancy rates are at an average of 10 percent marketwide, 9 percent in Brentwood, 10 percent in Cool Springs plus subleases, and 5 percent in West End.

Future submarket development will follow earlier development success and new rooftops. Current indictations point to Brentwood and Cool Springs. West End will experience only occasional growth due to the impact of high barriers to entry in this arena.

The areas to keep an eye on for the near future are Brentwood and Cool Springs. Brentwood, and particularly Maryland Farms, has historically been the healthiest submarket from supply/demand and rental rate stability standpoints. “With the park almost finished, smaller periphery niche product like Highwoods’ Seven Springs project should help satisfy future demand,” says Johnston.

“Given current construction projects and the large amounts of sublease space on the market,” says Johnston, “we believe an average absorption year will cure most oversupply worries.”


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