Nashville is challenging the typical paradigm of supply and demand, according to a Q1 2017 JLL report on the Nashville office market. Supply is outpacing demand, yet rent continues to grow.
Between Q4 '16 and Q1 '17, total vacancy in metro Nashville office increased 192 basis points, from 6.2% to 8.1%, according to JLL data. Even so, average asking rent so far in 2017 increased 218 bps, from $23.59 to $25.78. Vacancy most sharply increased in suburban product, and rent also grew the strongest in the suburbs.
What gives? Demand is still hot enough to drive rents, especially for new Class-A space. Rent will probably continue to grow until demand lessens. Collectively, according to the report, tenants are now seeking 2.4M SF in the Nashville market. By the end of the year, developers will deliver 2.6M SF of new space, but 64.6% of that is pre-leased.
Landlords are achieving higher asking rents than they ever have before, and tenants are finding more opportunities for contiguous space throughout the market, JLL notes. Eventually, as more space comes online, market conditions will enter a more neutral state between landlords and tenants.
Is overbuilding a possibility?
"For the office sector, the risk is low at the moment," JLL Nashville managing director Tom Hooper said. "New office developments are leasing well. There's good activity on the vacancy being created. As long as unemployment remains at historical lows in the Nashville area, we should be in good shape for the near term."
Job growth in Nashville has been steady. Unemployment in the Nashville MSA is 3.8%, lower than the national or Tennessee averages, according to the Bureau of Labor Statistics. In the last 12 months, the total number of jobs in the metro area was up 2.6%, again outpacing national and Tennessee job growth.
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