February 22, 2016

Cool Springs Gets Cramped: Some office tenants told no more room

By Nevin Batiwalla
Nashville Business Journal
Williamson County, Nashville’s fast-growing neighbor to the south, is pursuing a slew of business expansions and corporate relocations. But if it lands them, there’s no place for them to go for now. Matt Largen, director of the Williamson County Office of Economic Development, is going after 21 active projects in Williamson County. Seventeen of those need 60,000 square feet or more. Landing all of them would bring more than 10,000 jobs to the area and a total capital investment of $332 million.
If those companies plan to move in soon, they’re out of luck. There are no available blocks of top-tier Class A office space in Cool Springs bigger than 40,000 square feet. The dearth of space is partly a result of the recession, which put the brakes on development. As companies once again start to make moves, developers are playing catch up.
It’s also a by-product of Williamson County’s white-hot office market over the past decade, Largen said. Corporate relocations, like Nissan North America and Jackson National Life Insurance Co., have created hordes of jobs and bolstered the area’s reputation as a headquarters destination. 
“In the short term, I could see this effecting recruitment efforts if a company wanted to move in yesterday, when they contact our office,” Largen said. 
So far, Largen said the county hasn’t lost a company because of lack of space, but he wouldn’t be surprised if that changes. “One of the things we are definitely seeing is that when a company makes a visit to a community, they have a very short timeline in mind,” Largen said. “There is so much more due diligence on the front end, and decisions continue to get delayed. When they actually make the decision, they want to move quickly.”
David Wells, leasing director for Franklin-based Spectrum Properties/Emery, knows how tight the Cool Springs office market is getting. Spectrum is wrapping up a deal to lease 40,000 square feet in Three Corporate Center, one of the last sizeable blocks of space left in Cool Springs. With two companies having signed letters of intent, Wells expects the space to be gobbled up by the end of the year. He declined to name the tenants. 
“One of the potential tenants that wanted to take space had to be turned away,” Wells said. “It’s the first sign that you are going to start seeing tenants have to find other places to go.” 
With construction in the pipeline, at least one option will soon be available for companies willing to wait a year before settign up shop in Cool Springs. This August, Boyle Investment Company is expected to finish construction of 5000 Meridian, a 175,000-square-foot office building off Carothers Parkway. Boyle has yet to name tenants for the building, estimated to cost $35 million.
Within nine months, Spectrum Properties plans to break ground on a building as part of Corporate Center II, a 70-acre tract south of Nissan’s headquarters and east of Interstate 65, Wells said. The building will be 150,000 to 175,000 square feet and cost upward of $30 million. Asking rents will be around $25 per square foot, Wells said.
Boyle and Spectrum are building the office towers speculatively, with no major tenants on the hook yet – a move that essentially stopped during the recession,
Meanwhile, Duke Realty Corp., a major developer in Cool Springs, has no plans to build speculatively with its proposed Keystone Crossing at Cool Springs, a $30 million, 180,000-square-foot midrise on Mallory Lane, said Jeff Palmquist, senior vice president of Duke’s Nashville office.
“We are very bullish on Cool Springs, but we are just not in a position to put up a 180,000-square-foot spec building right now,” Palmquist said. “We are talking to several companies. There is a lot of activity.”
With returning demand for office space in Cool Springs and low supply, the area has become a landlord’s market. The average rent in Cool Springs is $23.24 per square foot for Class A office space, according to Cassidy Turley’s third-quarter report. 
“Rates are increasing. Concessions are decreasing.” Wells said. “Companies and tenants are starting to see that. That’s why we are seeing this spike in activity.”
Wells expects Boyle’s new building to be nearly full by the time it opens. But even if the building opens at zero percent leased, the vacancy rate for new high quality office space in Cool Springs will hover at 6 percent, Wells said. The average vacancy rate in the entire Nashville market is 11.2 percent.
“That’s the most significant fact I can find of how strong the market is,” he said.