Nashville’s population growth has skyrocketed in recent years.

According to the U.S. Census Bureau, Nashville saw the 19th largest population increase in the country from 2015-2016.

With nearly 100 people per day moving to the boomtown, it doesn’t seem that a dip is likely anytime soon.

And Nashville commercial real estate developers, investors, and businesses are feeling the pinch.

Rising Construction Costs

Rapidly growing population leads to shortages of housing and workspace, generating high demand in construction.

Rising construction costs coupled with the increase in land value over the last few years has made it difficult to justify building new projects.

In order for developers and investors to get the returns they need to justify taking on the risk of new construction, they must pass on those costs to future tenants through rent.

Rising Rent Rates

Over the last 18 months, rents have increased by over 10% in the Nashville office and retail markets.

I took over the leasing for 1720 West End Avenue in Fall of 2013.

At the time, rental rates were $22.50 / sq. ft. with a 16% common area factor.

In 4.5 years, we raised the rates to $32.00 / sq. ft. with a 20% common area factor – an aggregate increase of nearly 50%.

This building is not alone, either.

According to Costar.com, office rents have increased 22% since 2013 and are expected to continue this growth for the foreseeable future.

Nashville commercial real estate market as of Q1 2018

Nashville Office Market

Vacancy rates have decreased to 7.1%
- Down from 7.5% in Q4 2017
- Four new buildings were delivered totaling 117,850 sq. ft.
  - Additional 1,810,350 sq. ft. under construction
  - Rental rates average at $25.97 / sq. ft.
    - Representing a 1.4% increase over Q4 2017
    - Largest lease signed by NavHealth
      - 33,013 sq. ft. at 210 Westwood Place in the Brentwood Market

Nashville Retail Market

Vacancy rates have increased to 3.3%
- Up from 3.1% in Q4 2017
- Sixteen new retail buildings delivered totaling 205,845 sq. ft.
  - Additional 968,502 sq. ft. under construction
  - Rental rates average at $17.11 / sq. ft.
    - Representing a 1.6% increase over Q4 2017
    - Largest lease signed by Planet Fitness
      - 23,852 sq. ft. at 7657 Highway 70 South in Bellevue

Nashville Industrial Market

Vacancy rates maintained at 4.1%
- Representing no change over Q4 2017
- Six buildings delivered to market totaling 25,700 sq. ft.
  - Additional 5,767,321 sq. ft. under construction
  - Rental rates average $6.03 / sq. ft.
    - Representing a 9.8% increase over Q4 2017
    - Largest leased signed by Asurion LLC
      - 239,568 sq. ft. at 1800 Midway Lane in the Southeast Market