SOUTHEAST SNAPSHOT, JULY 2006

Nashville Industrial Market

David McGahren, Industrial Division Leader, Colliers Turley Martin Tucker

The Class A bulk market has seen the addition of several new buildings. Last year, developers added 2.9 million square feet of space and users absorbed 2.5 million square feet of Class A bulk space. Activity slowed for this product during the first quarter, though, with only 38,000 square feet absorbed. But there’s been interest in big boxes, so Class A space should gain traction as the year progresses.

Developers are counting on this with new buildings either recently completed or coming out of the ground.  During the first quarter, Crescent Resources completed Centre Pointe 7, a 498,000-square-foot building in its 260-acre industrial park in the Southeast submarket. The bulk facility still needs a tenant but this submarket has shown its prowess with more than 5 million square feet of positive absorption through 2004 and 2005. Its current vacancy rate is only 8 percent, which is slightly up from its year’s end figure of 7.7 percent.

The North submarket was the most active submarket during the year’s first quarter, posting net positive absorption of 610,000 square feet, more than half of the first quarter’s total absorption. This helped drop its vacancy rate from 6 percent at year’s end to just 4.9 percent by the end of March. New construction in the North submarket added 165,000 square feet of space, and an additional 1.1 million square feet is under construction and pre-leased. Significant build-to-suit and leases in this total include: Samick Music Co. Mfg. with 214,000 square feet in Gallatin; MGM Industries with a 107,000 square-foot expansion in Hendersonville; and both Gastite/Titeflex Corp. with 154,000 square feet and Federated Stores Distribution Center with 595,000 square feet both in Portland.

The East submarket saw little activity in the first quarter, with only 25,000 square feet of net positive absorption. This market is positioned though for future growth, especially in bulk product. It currently offers 1.5 million (with a potential of 2.1 million square feet including space that can be expanded) of new or soon to be completed Class A bulk space.           

Overall, there are 11 major industrial buildings currently under construction that will be completed this year or early next year with three of these buildings obtaining speculative construction.  While these 11 buildings will bring another 2.4 million square feet to the market, the speculative inventory could increase by 984,000 to 1.7 million square feet. 

The two major speculative buildings include: the Park 840 Building 1 (653,000 square feet) and First Industrial’s Rockdale 2 (300,000 square feet expandable to 1 million) in the East submarket.  The major build-to-suits are located in the North submarket, namely the Federated Stores Distribution Center (595,000 square feet), Samick Music (214,000 square feet) and Gastite/Titeflex (154,000 square feet). Such new and impending construction provides potential tenants with a variety of choices, including product in the 600,000- to 1.2 million-square-foot range. Any single transaction could dramatically alter the landscape and vacancy rate.

Nashville’s centralized location and its status as a top spot for corporate relocation further position these properties for the industrial sector’s sustained growth. As an example, Nissan’s recent decision to move its corporate headquarters to Nashville should draw suppliers that do business with the company. This high-profile relocation also gives Nashville momentum, elevating its stature as a good place to do business.

Representing one-third of Nashville’s industrial product, the warehouse sector posted 254,000 square feet of absorption during the first quarter. This helped to further reduce the vacancy rate from 5.5 percent at year’s end to 5.3 percent through March 2006.

While many areas of the country continue to struggle in manufacturing, Nashville gained more ground in the first quarter with net positive absorption of 254,000 square feet of manufacturing space, much of this in expansions and build-to-suits. Overall, the manufacturing sector saw its vacancy rate dip to 2.2 percent by the end of March, which was down from a year’s end vacancy rate of 3 percent.

Net asking rates vary by submarket but the weighted average is $7.95 per square foot for business center space, $3.94 for warehouse space, and $3.35 for Class A bulk and other bulk.

Overall, Nashville’s available product, along with its location and solid reputation, should see sustained growth in the industrial market; and the market should absorb 4.5 million square feet this year.

— David P. McGahren is an industrial division leader for Colliers Turley Martin Tucker’s regional office in Nashville, Tennessee.

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