Fueled by Nashville’s wildfire-like growth, many investors have adopted the phrase of being “bullish on Nashville” in an effort to take advantage of the hot real estate market. Real estate buyers must compete at their peak to execute in such a market, and now more than ever, institutional investors from around the country are scrambling to find the next industrial asset in Middle Tennessee that they can add to their portfolio.
Industrial Assets Have Proven Resilience
Industrial assets across the board have proven resilient, even throughout a global pandemic. American manufacturing has made a strong comeback already, but with realizations of vulnerabilities in our supply chain, it is likely that the US will begin to absorb the manufacturing that we have outsourced in the past couple of decades. Just recently, the Biden administration signed an executive order for an immediate 100-day federal review of our supply chains, likely leading to incentives for US manufacturers. Coupled with the revival of manufacturing in the US, the current e-commerce boom continues to demand more space as a growing number of consumers have become accustomed to the convenience of online retail and doorstep delivery.
Slow, Stable, and Steady
By nature, industrial buildings are slow, stable, and steady… not sexy. Historically, institutional capital has been placed in class A office, multifamily, and retail properties due to their sleek designs and higher rent rates. Alternatively, most Industrial buildings have been owned by private hands (typically owner/user types) who used building ownership as a pathway to generate wealth. Following a year filled with uncertainty, slow, stable, and steady IS sexy. This steady growth has allowed a market like Nashville to perform alongside some of the top US markets in the industrial sector.
Why Nashville?
Nashville is considered one of the United States “it” cities for several reasons, but the downtown honky-tonks aren’t enough to recruit corporate manufacturers and distributors to Tennessee on their own. While factors such as lower tax rates and government incentives have added to Nashville's attractiveness, Nashville's true draw is its prime location for distribution and connectivity to surrounding populations. In fact, 50% of the US population lives within a day’s drive (600-mile radius) of Nashville, and 12 million live within a 2.5-hour drive radius. The area also is supported by excellent rail and air access including the Nashville International Airport, offering a variety of fast and efficient transportation options for manufacturers.
Buyers, Sellers, and Developers are Getting Creative
Demand for warehouse and distribution space is soaring, and there isn’t enough product available to serve every business moving to Nashville. This demand has spiked sale and rent prices, causing developers to investigate every available land site as a potential industrial development. On the other side of the table, investors looking to acquire cash-flowing industrial properties do not have the luxury to wait to buy until a product hits the market. The fast-paced market has made it imperative that investors collaborate with local brokers in order to have a chance at purchasing off-market opportunities for existing products that owners are willing to offload to pursue “forward-sales” on new developments.
What happens next?
As we move towards the hopeful conclusion of COVID-19, there are still many unknowns as to what a post-pandemic world will look like. However, it is hard to believe that there will be anything less than healthy activity concerning Nashville’s industrial real estate market for the next handful of years. Nashville will continue to grow as a whole while simultaneously establishing itself as a prime location for e-commerce and distribution businesses.
About the Author
Sam Turner is an associate broker at Avison Young Nashville where he specializes in Industrial Leasing, Industrial Tenant Representation, and site selection for land development opportunities throughout Middle Tennessee.
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