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VOL. 36 | NO. 6 | Friday, February 10, 2012

Picking up where we left off

Middle Tennessee poised for new construction in rejuvenated office, residential, retail markets

By Bill Lewis

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Cranes, which lately have been an endangered species, are returning to Cool Springs. Not the kind that fly, but the kind that dot the skyline over construction sites and have made the Interstate 65 corridor south of Nashville the region’s most popular location for corporate offices.

The question that remains unanswered is whether Nashville’s commercial real estate industry has shaken off the lingering effects of the recession and is ready to create new corporate addresses near the airport, on West End, downtown and in the Gulch. Developers have announced projects in most of those areas but have been waiting for the economy to improve.

“There’s going to be a breakout, but not this year,” says Tom Frye, managing director of CB Richard Ellis’ Nashville office, of the likelihood of many new office buildings being built across the city.

He predicts another reasonably healthy year for the commercial real estate industry but expects everyone to continue exercising caution about building speculative office space which, by definition, is constructed

before it is taken by tenants. That was common before the economic downturn but has not been seen for several years – until now.

Boyle Investment Co. is under way with the area’s first speculative office building since 2006. The seven-floor, 177,577-square-foot building is part of the company’s Meridian development in Cool Springs. Boyle also is building a much smaller 15,000-square-foot mixed use building at 5005 Meridian. Both are expected to be finished this summer.

‘We all felt that if a corporate headquarters wanted to come to Williamson County, there were not any large office blocks available,” Boyle spokesman Shelby Larkin says.

“Although it’s risky, it’s a calculated risk,” she adds. “We do have some leases signed (and) we feel strongly about the Williamson County economy.”

Cool Springs, which has the second-best occupancy rate in Middle Tennessee at 6.1 percent, has new office space construction and more in the planning stages.

-- Photo: Lyle Graves | Nashville Ledger

Boyle isn’t alone in that sentiment. Even though no one has been building speculatively in Cool Springs, companies in search of upscale office space continue to move there. Cool Springs and nearby Brentwood now have a vacancy rate of just 6.1 percent, according to an end-of-2011 market survey by CB Richard Ellis. Only the West End-Belle Meade area has a lower vacancy rate.

Over the course of 2011, growing or relocating companies took 650,000 square feet of office space off the market across the region. That was somewhat less, but not drastically less, than the typical pre-recession “absorption rate” of 700,000 to 750,000 square feet, says CB Richard Ellis’ Frye.

Nashville’s overall office market, as measured by the firm’s survey, had a vacancy rate of 12.7 percent at the end of last year. The rate reported in the survey varied widely in different parts of the city.

  • Airport North, 16 percent
  • Airport South, 18 percent
  • Cool Springs-Brentwood, 6.1 percent
  • Downtown, 21.8 percent
  • Green Hills, 21st Avenue, Music Row, 10 percent
  • MetroCenter, 9.8 percent
  • North Nashville, 24.4 percent
  • West End-Belle Meade, 5 percent

“You have pockets that are doing very well right now,” says Pat Emery, president of Spectrum Properties, which manages about 1.4 million square feet of office space in the Cool Springs area, about a third of Cool Springs’ total.

Developers are ready to start building when they sense the time is right. Projects that could leap off the drawing board include:

Five properties totaling 1.5 million square feet in the Gulch to be built by a partnership between Spectrum and MarketStreet Enterprises.

Buchanan Point, the Mathews Co.’s 180-acre site north of Nashville International Airport, which could include up to 2.7 million square feet of office and mixed-use space.

Duke Realty’s 180,000-square-foot Keystone Crossing in Cool Springs. The site has been prepared but the project has been on hold because of the downturn.

Alex Palmer & Co.’s West End Summit. The company’s plans for twin towers containing a hotel, office space, residences, restaurants and shopping have been on hold for years.

Other projects are already moving forward.

Highwoods Properties will build a new 203,000-square-foot corporate headquarters for LifePoint Hospitals. The seven-floor building will be in Brentwood’s Seven Springs development just off Old Hickory Boulevard. Nashville is considering tax breaks for LifePoint to encourage the company to move from Williamson County to Davidson County.

South of Cool Springs on I-65, Boyle is creating its mixed-use Berry Farms development. Berry Farms, which is being developed in phases over time, will eventually feature more than 3 million square feet of office space ranging from corporate campuses, multi-story buildings, smaller professional offices and mixed use space that combines offices with retail and restaurants. Other buildings will combine office and residential spaces.

“The whole idea of Berry Farms is that sooner or later, Cool Springs is going to fill up. Berry Farms is the next step” south along I-65, says Frye.

Spectrum’s Emery has played a key role in Cool Spring’s 20-year transformation from horse pastures and farmland into the address of choice for the regional headquarters of some two dozen Fortune 500 companies. Partnering with MarketStreet Enterprises, whose vision helped transform the Gulch from a collection of derelict properties into a vibrant urban neighborhood, is a natural progression, he says.

“Real estate folks think the two hottest areas are Cool Springs and the Gulch,” Emery says.

“You’ve got an area like no other in town,” he says of the Gulch. “It’s got a vibe to it.”

Growing demand for office space along the West End corridor could lead to new construction there, as well, says Henry Menge, affiliate broker with XMi Commercial real Estate.

“The good Class A space is being absorbed. You see projects on the drawing board,” Menge says.

SoBro, the downtown district south of Broadway, also is a popular business address and could see renewed building activity. The newest office building there, the 29-floor Pinnacle at Symphony Place, is home to Pinnacle Financial Partners and top law firms. The building, which continues to lease space, is the state’s first LEED Gold certified office tower due to its energy efficient design. It has attracted tenants committed to creating a culture of sustainability.

Among SoBro’s attractions are the Schermerhorm Symphony Center, Country Music Hall of Game, Bridgestone Arena, Hilton Hotel, restaurants and the city’s new convention center.

The cost of parking discourages some potential downtown tenants, but some types of businesses, particularly law firms and others providing professional services, prefer having a center-city address, Menge says.

“You’ve got to want to be there. The good news is people want to be here,” he says.

That’s true for the different office markets throughout the Nashville area. As demand for space grows, cranes will return to the skyline across the entire region, not just in Cool Springs. The only question is when.

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