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MARKETBEAT Nashville - Cushman & Office Q3 2016 MARKETBEAT NASHVILLE OFFICE Overall Vacancy Overall
MARKETBEAT Nashville - Cushman & Office Q3 2016 MARKETBEAT NASHVILLE OFFICE Overall Vacancy Overall
MARKETBEAT Nashville - Cushman & Office Q3 2016 MARKETBEAT NASHVILLE OFFICE Overall Vacancy Overall
MARKETBEAT Nashville - Cushman & Office Q3 2016 MARKETBEAT NASHVILLE OFFICE Overall Vacancy Overall
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  • cushmanwakefield.com | 1

    Nashville Office Q3 2016

    MARKETBEAT

    NASHVILLE OFFICE

    Overall Vacancy

    Overall Net Absorption/Overall Asking Rent 4-QTR TRAILING AVERAGE

    Market Indicators Q3 15 Q3 16 12-Month Forecast

    Overall Vacancy 6.9% 4.7%

    Direct Net Absorption 457K 390K

    Under Construction 2.3M 3.7M

    Average Asking Rent* $21.35 $23.59

    *All Classes

    Economic Indicators Q3 15 Q3 16 12-Month Forecast

    Nashville Employment 919K 949K

    Nashville Unemployment 4.5% 3.5%

    U.S. Unemployment 5.2% 4.9%

    $22.50

    $23.00

    $23.50

    $24.00

    $24.50

    $25.00

    $25.50

    $26.00

    -50,000

    50,000

    150,000

    250,000

    350,000

    450,000

    2011 2012 2013 2014 2015 Q3 16

    Net Absorption Asking Rent, $ PSF

    4% 5% 6% 7% 8% 9%

    10% 11% 12% 13% 14% 15%

    2010 2011 2012 2013 2014 2015 Q3 16

    15-Year Historical Average = 11.6%

    Economy Nashville’s office market is on the cusp of a significant growth spurt. Expansion has surpassed supply and driven rental rates to all-time highs. Some of Nashville’s largest businesses have recently announced expansions: Bridgestone for 450 jobs in 80,000 SF and Smith Seckman Reid for 59,000 SF, both in Airport South; Schneider Electric with 250 additional jobs and 900 existing jobs in Cool Springs; and Hankook Tire America with 200 jobs in 40,000 SF in the CBD. Construction underway will bring relief from vacancy rates that have fallen so low as to constrain growth.

    Market Overview The last year Nashville built more office space than it absorbed was in 2009, which was 14% vacant at that time. Since then, 2.9 million square feet (MSF) have been built and 5.6 MSF have been absorbed. Absorption through the first three quarters of 2016 totaled 883,000 square feet (SF), below the 1.2 MSF in the same period in 2015. Absorption was split between Class A space (408,000 SF), Class B (455,000 SF), and Class C (19,000 SF). The Brentwood submarket absorbed 225,000 SF of the total, as the Seven Springs West building came online (203,000 SF) in the third quarter 85% pre-leased. Significant Class A absorption was also recorded in Midtown (119,000 SF) where 35 Music Square East was completed in first quarter, and Cool Springs (86,000 SF) where Mallory Park Phase I was completed in first quarter.

    The office vacancy rate has fallen steadily over the last three years, ending the third quarter at 4.7%, down from 6.2% at the beginning of 2016. Class A vacancy, at 2.6%, has been below 5% for three years, a level considered optimal for providing opportunities for growth. Cool Springs, a submarket with over 4 MSF of Class A space, has less than 5,000 SF vacant. Brentwood, currently the fastest growing submarket, has 2% vacancy in Class A space while Midtown has 1.6% vacancy. CBD Class A vacancy ended the quarter at 4.6%; Class B space in the CBD was 15.2% vacant and accounted for nearly all of the CBD’s absorption.

  • cushmanwakefield.com | 2

    Nashville Office Q3 2016

    MARKETBEAT

    Developers are working hard to address the undersupply. The three buildings completed year-to-date added 379,000 SF to the inventory but only 48,000 SF remains available. Four buildings due for completion in the fourth quarter of 2016 will add 1 MSF of inventory. HCA’s 498,000 SF building in Midtown is a build-to-suit while the other three are speculative. Hill Center Brentwood- Building B, is fully pre-leased, and the other two, 1201 Demonbreun in Midtown and Two Greenway in Cool Springs, have only 229,000 SF available between them. To be completed in first quarter 2017 are Two Franklin Park (279,000 SF) in Cool Springs with 50,000 SF available and Brentwood Commons III (130,000 SF) with 65,000 SF available. Second quarter 2017 is to bring online Seven Springs II (130,000 SF) and Hill Center Brentwood-Building A (60,000 SF) in Brentwood and The Wasbash (20,000 SF) in North Nashville. Five buildings are scheduled for completion third quarter 2017 totaling 1.4 MSF. Five more buildings are scheduled to come online in fourth quarter 2017 totaling 431,000 SF, rounding out to a total of 20 buildings currently under construction. Two developers have announced a $270 million mixed-use project in Cool Springs that will include 750,000 SF of office space, which aims for a mid-2018 completion.

    Class A weighted average full service asking rates for the Metro area for third quarter are $26.42 PSF, up from $24.76 at the beginning of the year. Highest Class A rates are in Midtown at $34.94 PSF, followed by $30.39 in Green Hills and $27.91 in CBD. Class B rates average $23.55 PSF, up from $21.29. In Midtown Class B rates average $27.20 PSF, followed by $25.32 in CBD.

    Among recent transactions, Bridgestone leased 80,000 SF at Global Mall. CKE Restaurants leased 59,882 SF at Two Franklin Park. Burr & Forman leased 26,450 SF at 222 Second Avenue South. Qualifacts leased 24,144SF at UBS Tower. Avison Young leased 16,250 SF at Terrazzo. MyNexus expanded their space by 15,197 SF at Harpeth on the Green II.

    The largest office sale transaction year-to-date was the $164 million sale of Corporate Centre, a 700,000 SF, five office building portfolio in Cool Springs, by Stockbridge Capital Group.

    Vacant Space by Submarket % OF TOTAL VACANT SPACE Q3 16

    New Supply NEW SUPPLY WILL BE WELL ABOVE HISTORIC AVERAGES

    Net Absorption – Deliveries - Vacancy VACANCY CONTINUES TO DECLINE AND DELIVERIES

    CANNOT KEEP UP WITH THE ABSORPTION

    13%

    16%

    5%

    43%

    4% 5%

    4% 10%

    2% Airport North Airport South Brentwood CBD Cool Springs Green Hills/West Nashville MetroCenter Midtown North Nashville

    4%

    6%

    8%

    10%

    12%

    14%

    -0.1

    0.2

    0.4

    0.7

    0.9

    1.2

    1.4

    1.7

    '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Q3 16

    Va ca

    nc y

    R at

    e

    M S

    F

    Net Absorption Deliveries Vacancy Rate

    0.0

    0.5

    1.0

    1.5

    2.0

    2.5

    3.0

    3.5

    '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

    M S

    F

    15-Year Historic Average = 600,000 SF

  • cushmanwakefield.com | 3

    Nashville Office Q3 2016

    MARKETBEAT

    Key Under Construction Projects Q3 2016

    Key Lease Transactions Q3 2016

    Copyright © 2016 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

    PROPERTY SF TARGET QUARTER TYPE OF CONSTRUCTION SUBMARKET

    Bridgestone Tower 514,000 Q3 17 Build-to-Suit CBD

    HCA Capitol View 498,000 Q4 16 Build-to-Suit Midtown

    222 Second Avenue 362,000 Q3 17 Speculative CBD

    Two Franklin Park 279,151 Q1 17 Speculative Cool Springs

    1201 Demonbreun 286,000 Q4 16 Speculative Midtown

    PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET

    5244 Hickory Holllow 80,000 Bridgestone New Lease Airport South

    6100 Tower Cir 59,882 CKE Resturants New Lease Cool Springs/Franklin

    222 Second Ave. 26,450 Burr & Forman New Lease CBD

    UBS Tower 25,144 Qualifacts New Lease CBD

    Terrazzo 16,250 Avison Young New Lease Midtown

    Harpeth on the Green II 15,197 MyNexus Expansion Brentwood

    INVENTORY DIRECT VACANT

    DIRECT VACANCY

    RATE

    Q3 16 ABSORPTION

    YTD NET ABSORPTION

    YTD DELIVERIES

    UNDER CONSTRUCTION

    OVERALL AVERAGE

    ASKING RENT (ALL CLASSES)*

    OVERALL AVERAGE

    ASKING RENT (CLASS A)

    Submarket

    Airport North 4,294,474 215,613 5.0% -13,543 120,388 0 0 $22.11 $22.78

    Airport South 3,114,229 256,102 8.2% 47,738 97,387 0 240,000 $13.98 $15.80

    Brentwood 5,123,549 85,929 1.7% 207,934 224,939 203,000 420,000 $26.40 $27.53

    CBD 7,013,075 693,715 9.9% 37,156 124,155 0 1,251,000 $25.39 $27.91

    Cool Springs 6,663,880 59,764 0.9% 6,181 81,533 80,000 884,803 $28.01 $31.52

    Green Hills/West Nashville 1,962,553 75,368 3.8% 15,069 14,732 0 68,655 $28.47 $30.39

    MetroCenter 1,737,693 61,812 3.6% 60,997 115,262 0 0 $19.30 $20.00

    Midtown 4,671,889 155,241 3.3% 30,527 116,200 96,210 784,000 $27.92 $34.94

    North Nashville 419,800 24,655 5.9% -3,093 -11,822 0 20,000 $20.10 $22.05

    TOTALS 35,001,142 1,628,199 4.7% 389,603 882,774 379,210 3,668,458 $23.59 $26.42

    *Office Asking Rents converted to Full Service

    INVENTORY DIRECT VACANT

    DIRECT VACANCY

    RATE

    Q3 16 ABSORPTION

    YTD NET ABSORPTION

    YTD DELIVERIES

    UNDER CONSTRUCTION

    OVERALL AVERAGE

    ASKING RENT

    By Class

    Class A 15,803,570 406,077 2.6% 222,738 407,798 299,210 3,605,132 $26.42

    Class B 16,119,957 956,190 5.9% 157,344 455,572 80,000 63,326 $23.55

    Class C 3,077,615 265,932 8.6% 9,521 19,404 0 0 $15.39

  • cushmanwakefield.com | 4

    Nashville Office Q3 2016

    MARKETBEAT

    OFFICE SUBMARKETS

    Cushman & Wakefield 1033 Demonbreun, Suite 600 Nashville, Tennessee 37203 Tel: +1 615 301 2800 Fax: +1 615 301 2957

    About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm th

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