Amid Weak Investment, Strong Coworking Gains Animate Nashville

The office sector of Nashville showed uneven performance across key metrics, mirroring the lasting changes the sector still faces, Yardi Matrix data shows.

Construction activity stayed muted while office investment pace did not pick up, with the metro placing on the last spots for both metrics among its peers.

However, office assets traded at comparatively affordable prices while Nashville’s office vacancy rate was among the lowest ones in the country. Another positive aspect is the coworking sector in the metro, that expanded notably compared to last year, signaling ongoing demand and resilience.

Nashville sales slower, prices stay low

As of August, investors sold nine properties totaling 1.4 million square feet in Nashville, generating $168 million. The amount represented a 17.7 percent year-over-year drop in office investment volume, with the metro ranking in last place in comparison with its competitors. For context, Dallas led with nearly $1.5 billion in deals, followed by San Diego ($1 billion) and Houston ($915 million).

One of the largest office sales included Dreamscape Cos.’ $55.3 million acquisition of Fifth Third Center, a high-rise in downtown Nashville. The 490,281-square-foot tower was sold by Perform Properties, a Blackstone-owned entity. The 31-story traded at a notable discount when compared to the previous time it changed ownership: back in 2019, when the Blackstone entity paid $144.8 million for it.

The second-largest sale in the metro was the $22.5 million acquisition involving 308 Mallory Station Road in Franklin, Tenn. A private entity bought the 92,530-square-foot building from Shop Fix Academy, while also securing a $21 million acquisition loan from Fourth Capital Bank.

Meanwhile, Nashville office space changed hands at an average sale price of $135 per square foot at the end of August—below the national average of $190 per square foot and placing the metro among the most affordable markets in the nation.

Among similar markets, Nashville’s office prices outperformed only Houston’s, where assets sold at $97 per square foot. In contrast, San Diego led with $332 per square foot and Dallas followed, with $240 per square foot.

Nashville keeps low vacancy

Nashville’s office vacancy rate clocked in at 17.9 percent as of August—below the national rate of 18.7 percent and marking a 240-basis-point 12-month change.  The metro rate’s was among the lower ones when compared to similar markets, a positive feature as the sector is grappling with heightened values.

Lower rates were registered in Tampa (15.1 percent), Phoenix (17.2 percent) and Orlando (17.8 percent), while Austin (26.5 percent) continued to post the highest rate in the country.

Meanwhile, the metro’s listing rates stood at $30.65 per square foot—below the national average of $32.63 per square foot and continuing to place Nashville among the most affordable metros in the nation.

On the other hand, pricier markets included Austin ($46.04 per square foot) and San Diego ($45.23 per square foot), while Nashville average rents outperformed those of Houston ($27.62 per square foot), Orlando ($27.82 per square foot), Tampa ($29.68 per square foot) and Phoenix ($29.28 per square foot).

Slow construction activity puts Nashville at the bottom

As of August, Nashville’s under-construction pipeline had 503,780 square feet of competitive office space across six properties underway, accounting for 0.7 percent of its existing stock. The rate was below the national average of 0.9 percent and most of its peers. For context, Austin led with 3.4 percent and San Diego followed, with 1.7 percent.

In terms of square footage, Nashville’s pipeline ranked on the second to last spot when compared to similar markets, while Dallas led with 3.8 million square feet underway.

The largest project currently under development is the 229,000-square-foot office building within Peabody Union in the city’s downtown area. The Class A project is developed by a joint venture of Hensler Development Group, Stiles and PGIM Real Estate as part of a larger mixed-use development involving a 354-unit multifamily tower and 50,000 square feet of retail space. Developers broke ground on the six-story building in 2022, with delivery estimated for this September.

However, developers have completed six projects totaling 1.4 million square feet in the metro—accounting for 2 percent of its stock. The new square footage added to Nashville marked a massive 595 percent year-over-year growth in office completions, while Yardi Research Data shows no construction starts.

The largest completion is Parcel 9A1 of the Nashville Yards Entertainment District, a 420,000-square-foot Class A+ creative office property. Southwest Value Partners started construction in 2022, with the 12-story building delivered this August. 

Nashville’s coworking sector sharply expands

The coworking sector in Nashville comprised approximately 2.2 million square feet across 117 locations, CoworkingCafe data shows. That marked a steady increase when compared to the 1.8 million square feet recorded in August last year. Among similar markets, Nashville’s inventory outpaced Austin (1.9 million square feet), Tampa (1.7 million square feet), Charlotte (1.6 million square feet) and Orlando (1.4 million square feet). Meanwhile, Dallas led with 5.4 million square feet.

Nashville’s share of flex office space as percentage of all leasable office space reached 3.4 percent—above the national average of 2.1 percent. Nashville’s was one of the higher rates in the nation and second only to the 4.2 percent recorded in Miami.

The list of the top flex office providers in Nashville remains unchanged since our last update. Regus led, with operations totaling 284,552 square feet, followed by Espaces (263,001 square feet), Spaces (128,000 square feet), Industrious (106,667 square feet) and Expansive (80,111 square feet).