The Nashville commercial real estate market enjoyed years of strong leasing and development activity. The city itself saw record-setting economic growth. Then the COVID-19 pandemic hit the market in the middle of March, bringing this growth to an immediate halt.
But not even this has slowed the Nashville area’s industrial market. The Nashville Second Quarter 2020 Industrial Market Report from Avison Young shows that the local industrial market, fueled by an increased demand for ecommerce, groceries and household essentials, continued its impressive growth in the quarter.
And this growth came even as the rest of the market’s commercial sectors struggled with the impact of the shutdown orders that resulted from the COVID-19 pandemic.
According to Avison Young’s report, Nashville’s average industrial asking rent reached $5.68 a square foot at the end of the second quarter. That’s an increase of 2 percent from the middle of 2019. The warehouse sector saw 2.2 percent rent growth during the past 12 months, hitting an average of $5.20 a square foot in the second quarter. Rents did fall, though, in the flex sector, ending the second quarter at an average of $12.18 a square foot, a drop of 4.9 percent from the same quarter in 2019.
The Nashville industrial market’s overall vacancy dropped 20 basis points from the second quarter and 130 basis points on a year-over-year basis, ending the second quarter at 3.1 percent. Warehouse vacancy ended the quarter at 3 percent, down 160 basis points on a year-over-year basis, while flex vacancy rose 130 basis points to 3.5 percent during the same period.
Net absorption climbed to 2.7 million square feet during the first half of the year. Avison Young said that demand from industrial tenants whose buildings were destroyed by a tornado that hit Nashville in early March resulted in a notable surge in leasing activity in late March and April.
FedEx was particularly active. Avison Young reports that the shipping provider leased more than 600,000 square feet of industrial space in the Nashville market during the second quarter in several locations. FedEx did this to replace space that the tornado damaged.
COVID-19 didn’t stop industrial construction in the Nashville market, either. Construction crews delivered nearly 1 million square feet of industrial space during the first half of the year. An additionl 6.9 million square feet of new industrial construction is currently underway.
Avison Young also pointed out some highlights of the second quarter. Amazon, for instance, announced its efforts to hire 175,000 new U.S. employees within their fulfillment centers and delivery network. More than 2,000 of those jobs were spread across their Tennessee locations.
Also, two buildings, 5 and 7, were delivered in the new Park 24 development during the second quarter. This added a combined 427,000 square feet of new inventory to the Southeast submarket. Both buildings delivered vacant. In the Wilson County submarket, Speedway Industrial Park Building 4 delivered in the second quarter. The 443,000-square-foot industrial warehouse is 100 percent leased to FedEx.
Then there is Starbucks. The coffee giant plans to relocate its current distribution center in Park840 to a 1.3-million-square-foot build-to-suit at Panattoni’s Speedway Industrial Park.