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VOL. 40 | NO. 12 | Friday, March 18, 2016

It’s good to be a construction worker in Middle Tennessee

Cranes fill the sky as builders push to meet demand for office space

By Bill Lewis

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Sitting in the Nashville region’s frustrating traffic, it’s hard not to compare the construction cranes dotting the skyline and creating roadway delays in almost every direction to vultures circling overhead.

They both signal places best avoided if you want to get where you’re going.

As you sit through the traffic light for the third time, take a moment to consider the bright side.

If you have a son or daughter or a brother-in-law looking for work, all those cranes are a signal that thousands of jobs are coming to the region.

Companies like Lyft, Bridgestone Americas and HCA are either renovating buildings or having new office space built in Nashville’s urban core.

They are joining companies like UBS, the Swiss financial services company that expects its total number of employees downtown and in Franklin to surpass 1,500 this year.

Those companies, and employers like them, are why Nashville’s 3.6 percent unemployment rate was the lowest of any of Tennessee’s major cities in January and why Williamson County’s unemployment rate of 3.2 percent was the lowest in the state.

“I counted 18 cranes from my window the other day,” says Janet Miller, CEO and market leader for Colliers International in Nashville. The commercial real estate firm’s office is on Third Avenue South in downtown’s SoBro district.

Some of those cranes probably are at construction sites of the 20 hotels that have been announced for downtown since completion of the 1.2 million-square-foot Music City Center in 2013. Developers are attracted by nightly room rates averaging between $400 and $500, Miller says.

Construction continues at Hill Center in Brentwood on the southwest corner of Franklin Road and Maryland Way.

-- Michelle Morrow | The Ledger

Other cranes may mark the construction of condominiums like the Luxury City Lights development on Rutledge Hill, where prices are expected to begin at more than $400,000.

Many of those cranes are at office buildings, and they represent thousands of new jobs on their way to the region.

In 2006, there were 983,074 jobs across an area that includes Davidson, Williamson, Wilson, Sumner, Rutherford Robertson and Maury counties. At the end of last year, there were 1.128 million jobs in the region, according to the Metropolitan Planning Organization (MPO).

In 20 years, the number of jobs is expected to grow to 1.536 million. During that time, the region’s population is expected to grow by about 1 million people, to 2.174 million, according to the MPO, a federally designated agency that plans for the region’s transportation needs.

Those people are going to need a place to work, and Miller says he expects the pace of construction to continue through 2017.

“The space needs to be there,” she says.

Without available space, businesses like Bridgestone Americas won’t consider relocating operations to the region.

That firm, part of the world’s largest tire and rubber company, is building a 30-story, $200 million-plus headquarters building not far from Nashville’s new convention center.

It will house 1,100 employees already working in Nashville and 600 jobs being relocated to the city.

A rendering of the 25-story 222 Second Avenue South building, designed by Gresham Smith and Partners

-- Submitted

“It’s important for economic growth,” says Jeff Haynes, a managing partner for Boyle, which is developing new office space for a division of HCA on Charlotte Avenue near the State Capitol and plans 3 million square feet of office space in Franklin’s Berry Farms master-planned community.

If growing businesses can’t find space here, other cities will be happy to accommodate them.

“Without space, corporate relocations won’t look at Nashville. We’re now competing with Seattle, Portland, Salt Lake City and other cities,” Haynes says.

Large corporations like Bridgestone and Nissan, which moved its North American headquarters to Cool Springs from Los Angeles a decade ago, can build or lease entire buildings. Bridgestone’s new building is being constructed by Highwoods Properties.

But such large build-to-suit projects are rare, Miller says.

Most employers lease space in buildings occupied by more than one tenant, which is what Microsoft did when it leased 13,319 square feet of space in the OneCity development west of downtown Nashville on Charlotte Pike. OneCity will eventually have 1 million square feet of office space.

But for now, at least, large blocks of space in multi-tenant buildings can be hard to find anywhere in the region.

“Right now we’re one of the top five tightest markets in the country” with an overall vacancy rate of just 6 or 7 percent,” explains Haynes.

New construction – there has been more than $1 billion worth in downtown alone since the Ascend Amphitheater was built on the site where Nashville once burned its garbage – is keeping pace with demand.

But just barely, it seems.

For example, MarketStreet Enterprises completed the $78.5 million Gulch Crossing office building on Demonbreun Street last year.

The 205,000-square-foot building was fully leased at opening.

Job site entrance for the 222 Second Avenue South Building.

-- Michelle Morrow | The Ledger

Gulch Crossing was the first new office building in Nashville since the Pinnacle at Symphony Place in 2009.

For years, demand for space just wasn’t there. But times have changed.

Now, across the region, 2.8 million square feet of office space is on track for completion by late 2017, according to a market analysis by Colliers.

Of that, 1.7 million square feet of space is in or near downtown and 1.1 million feet of space is in the suburbs.

At the end of 2015, that space was already 60 percent leased.

Growing competition for Class A space is pushing rents to unheard-of levels. Tenants are paying $36 to $40 per square foot per year in downtown’s newest buildings.

In older Class A buildings downtown, rents average $28.74. In its analysis, Colliers’ report states rents are at ‘a record high.”

“It is really a phenomenon,” says Miller.

In suburban areas like Cool Springs, rent in new Class A construction is $29 to $35 per square foot. In older Class A space, it’s averaging $25.08, according to Colliers.

There is about 735,000 square feet of Class A space available in the region. That’s a lot of space, but it’s spread out in buildings across the area.

Employers finding themselves in need of a large block of space are finding their options “extremely limited,” the Colliers’ analysis states.

In Brentwood, just 1 percent of Class A office space is available for lease. In Cool Springs, 1.2 percent of the existing space is open.

Along West End in Nashville, which includes the area between Vanderbilt University and I-440, the vacancy rate is just 4.2 percent, the report says.

Those numbers explain why Nashville’s skyline is filled with cranes with more on the way.

In Cool Springs, Spectrum Emery is developing Two Franklin Park, part of a 71-acre corporate campus with walking trails and ponds.

The building, the sister of One Franklin Park, will have 280,000 square feet of space.

In Brentwood, Boyle is developing Brentwood Commons, which will have 130,000 square feet of Class A space. Southeast Ventures’ Mallory Park in Brentwood will deliver 80,000 square feet of space this year. Quorum health has already taken half of it.

Close to downtown Nashville, new buildings include:

-- The 98,000-square-foot 35 MSE on Music Row

-- The 15-story 1201 Demonbreun building next to the Twelve Twelve luxury condos

-- 500,000 square feet of space for HCA in the Capitol View development on Charlotte Pike near the State Capitol.

Capitol View will have 1 million square feet of office space, 300,000 square feet of retail space, around 1,000 residences and two hotels.

Switzerland-based UBS, which arrived in 1999 when it acquired JC Bradford, is investing $70 million to fit-out its Business Solution Center space downtown at UBS Tower plus space at One Franklin in Williamson County.

UBS’ downtown offices are in the renovated building on Deaderick Street previously known as First American Center.

In Franklin, it took the last open space in the first building at the Franklin Park corporate campus.

The company sees advantages in being located in the Nashville region. They include low taxes and cost of living and the 110,000 students at the area’s 18 colleges and universities, who form a deep pool of talent.

“Choosing Nashville to expand this commitment for our Business Solution Center was a logical extension of the positive experience we have had,” says Wanda Lyle, managing director and general manager.

Spectrum Emery, the developer of Franklin Park, is also responsible for the planned $400 million redevelopment of Nashville’s old convention center into a mixed-use development with retailing, dining, the National Museum of African-American Music, residential space and an office tower.

Also downtown, Houston-based developer Hines is constructing the 25-story 222 2nd building directly across the street from Ascend Amphitheater.

The building will have 350,000 square feet of office space, more than 25,000 square feet of retail and restaurant space and a 10-level garage.

Hines says he was attracted by the level of civic investment in downtown Nashville, including the Music City Center, Bridgestone Arena and Schermerhorn Symphony Center, which all attract people to the area.

Ascend Amphitheater and the surrounding 11-acre West Riverfront Park also create a destination for people throughout the day and evening, says Vikram Mehra, a managing director with Hines.

The amphitheater and park were built on the former site of the Thermal Transfer plant, where for three decades the city burned up to 1,000 tons of garbage each day.

The symbolism of the transformation of an environmental wasteland into a park is not lost on Mehra.

“No one thing completely defines a city, but some things are the defining moment in time,” says Mehra.

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