Stuck in a holding pattern. That’s how Avison Young describes Nashville’s office market during the first quarter of 2021.
And this isn’t surprising. The COVID-19 pandemic has hit the U.S. office market especially hard, what with so many companies sending their employees home to work remotely. Plenty of office space remains empty today, and Nashville’s market is no exception.
Nashville’s office market faces the same challenges, then, as do markets across the Midwest. According to Avision Young’s first quarter office sector report, Nashville’s vacant office space has increased by more than 2.8 million square feet since the beginning of 2020. That has caused the sector’s vacancy rate to increase to 15.5 percent at the end of the first quarter of this year.
Not surprisingly, many companies are subleasing this vacant office space. Avison Young says that sublease space has seen a dramatic increase since the start of 2020, with Nashville ranking among the top large cities with rising sublet availabilities. The city’s sublease availability, in fact, is now two times higher than it was during the 2009 Great Recession, with the majority of this space in the suburban Brentwood and Cool Springs submarkets.
This doesn’t mean that leasing activity is dead in the Nashville office market. Avison Young points to the first quarter deal closed by the U.S. wing of Tokyo-based NTT Data Services. The company subleased the 34,000-square-foot former Bridge Connector space in Capitol View Block E, one of the first sizable office deals in the Nashville CBD since the pandemic began.
The hope, of course, is that this market will see more deals in the near future as the country’s vaccine rollout continues to pick up pace. Developers certainly haven’t stopped working in the Nashville market, with Avison Young reporting that the office sector here had 2.3 million square feet under construction as of the end of the first quarter. Nearly 35 percent of this space was preleased.
A good portion of this construction activity is slated for Nashville’s CBD. Avison Young says that additional proposed projects in the CBD and Midtown areas are expected to break ground in the coming months, possibly adding an estimated 500,000 square feet to current office construction totals in these areas.
Construction completions totaled 1.2 million square feet, with the highly anticipated first Amazon BTS high-rise among the projects delivered.
Of course, office sales were down in the first quarter, thanks again to the COVID-19 pandemic. Avison Young reported that Nashville’s office sales totaled $53.2 million in the first quarter of 2021, a drop of 89 percent from the first quarter of 2020, before COVID-19 lockdowns stifled investment activity across the market.
In the largest office sale of 2021 so far in Nashville, 211 Commerce Street in the CBD sold to the joint venture partnership of Lincoln Property Co. and Velocis for $50 million. Velocis plans to invest $13 million into refurbishing the property, with construction set to wrap by the end of this year.