As a broker specializing in office properties in Williamson and Davidson County, I work with two main groups of clients: occupiers/users and investors. In industry terms, this represents the space market and the yield market. My clients either need a place to run their businesses or seeking cash flow from an investment.
With news about employees returning to offices and some companies closing due to pandemic fallout, it's worth asking: how much of this national news applies to the Nashville Metropolitan Statistical Area (MSA)?
The reality is that Nashville businesses still need space to operate. While some our submarkets have higher vacancies, market rents continue to rise at an average annual rate of 1.6%. The Nashville MSA has an average asking rent of 33 dollars per square foot. Banks, generally, prefer to lend to owner-occupants, requiring higher down payments and additional collateral. Investors are often paying cash or focusing on buildings with stable, long-term tenants. Despite national economic concerns, Nashville remains a beacon of stability.
About one-third of office sales in Davidson County were to owner-occupiers. Both owner-occupiers and investors are tending to choose Class B or lower buildings, typically constructed in 1968. Many of these purchases are standalone buildings or condos with a single tenant. The buyers range from service providers to more sophisticated investors.
In the rental market, tenants are engaging in what’s known as a "Flight to Quality." Major office owners, particularly those with paid-off portfolios or economies of scale, are "amenitizing" their buildings. They’re adding shared conference rooms, gyms, and retail spaces to entice tenants to pay higher rents for prime properties. This strategy is working for firms like Highwoods and Boyle, who believe companies will pay more to attract top talent and bring employees back to the office.
Banks, meanwhile, are under increased scrutiny from shareholders and owners, making them cautious about lending, particularly for non-owner-occupied offices. The regional office vacancy rate stands at 9.0%, with some areas—like Downtown—reaching 17.7%, and others—like West Office—at only 1.5%. Recent headlines highlighted two office towers selling for pennies on-the-dollar due to loan defaults, but most banks are still adhering to the "extend and pretend" approach, hoping borrowers can find new tenants. National economists predict that more defaults may be on the horizon, even in Nashville.
For occupiers, the desire to stop paying rent and control their own space is strong. Investors are focused on low-risk properties in high-demand areas. However, bargains in the office market are few and far between. Many owners haven’t fully accepted the reality of their situations, and some are exploring adaptive reuse options. In this uncertain landscape, brokers are essential for guiding clients through the complexities of sales and lease agreements, ensuring they know what they should—and shouldn’t—pay for.
The office market in Nashville is stable, and opportunities for true bargains are rare, but they are there.
With a childhood passion for building and a knack for community transformation, Jana Truman brings a unique perspective to commercial real estate. Known for connecting the dots in complex deals and speaking ‘residential’; Managing broker for SVN Accel Commercial Real Estate, Jana is the go-to expert who maximizes value and maintains strong relationships, benefiting clients and residential agents alike.
