AT&T shrinks Nashville office hub as corporate downsizings remain sticking point for national recovery
According to Katie Burke at CoStar News, "It has its name emblazoned on the building, but that hasn't been enough to keep telecommunications giant AT&T from once again downshifting its presence in one of downtown Nashville, Tennessee's landmark office towers.
The company, which for several decades has leased space in the "Batman" building at 333 Commerce St., offloaded another three floors as part of a recent renewal agreement it signed with landlord MetLife, according to a JLL report. The move means the company now fills just shy of 66,000 square feet in the 27-story tower, or about half of the more than 129,100 square feet it had leased prior to the deal.
It's the latest downsizing round for the Dallas-based company in the landmark tower, one of Nashville's largest office properties. The roughly 765,625-square-foot building was originally developed in the early 1990s to house BellSouth, AT&T's predecessor that occupied the entire tower.
AT&T's footprint has fluctuated in the years since it absorbed BellSouth in late 2006. It occupied about 255,500 square feet in the months leading up to the pandemic, according to CoStar data.
The company did not immediately respond to CoStar News' requests for comment.
The Batman tower is currently about 60% leased with other tenants including the Federal Reserve Bank of Atlanta and law firm Pillsbury, according to CoStar data.
Shift to smaller space
Corporate downsizings have largely dominated the national office market over the past several years as companies look to shrink their space in response to flexible work policies as well as to curb extraneous expenses.
While the number of leases signed since the start of the year is higher than quarterly averages reported in the early 2010s, the amount of space leased is roughly 20% smaller than the pre-pandemic average, according to CoStar analysis. What's more, large companies such as Alphabet's Google, PwC and Goldman Sachs have all slashed positions across their global workforces, a sign that many are unlikely to sign on for additional office space.
All of that has pushed the national office vacancy rate to nearly 14%, according to CoStar data, a figure expected to climb even further as tenants offload space when it comes time to renew lease agreements.
HMSHost Corp., for example, recently recommitted to its headquarters in Bethesda, Maryland, but slashed more than half of its original footprint. The company, a provider of food and beverage services throughout the travel industry, renewed its lease for 72,000 square feet, according to a CBRE market report, down significantly from the roughly 150,000 square feet it previously occupied.
Even with AT&T's downsizing, Nashville is still standing on more solid ground compared to some of its national counterparts.
Leasing in the area just about matches what was reported in the years leading up to the pandemic, and companies such as TikTok, Oracle and Amazon have or plan to expand their presence in the city in moves that should help bolster the Nashville market's reputation as a burgeoning corporate hub.
New construction has pushed the region's vacancy rate up to about 11.5%, CoStar data shows, but many stakeholders see that as a sign that developers are betting on the region's long-term trajectory rather than its immediate challenges. In addition to the 7 million square feet built in and around the area since 2020, another roughly 3.1 million square feet is currently underway. About half of that pipeline is preleased."
The ongoing trend of corporate downsizing, as exemplified by AT&T slashing half its space in Nashville’s landmark "Batman" building, could have several implications for property taxes in the area.
First, as companies like AT&T reduce their office footprints, the demand for commercial office space drops, leading to an increase in vacancy rates. While Nashville is faring better than some cities with an 11.5% vacancy rate, up from pre-pandemic levels, this still represents a substantial shift. Lower occupancy rates can result in decreased property values, especially if landlords struggle to fill vacant spaces. Since property taxes are largely based on assessed property values, a decline in building value could lead to lower property tax assessments. This might affect the city’s revenue from commercial real estate taxes, forcing local governments to either adjust tax rates or find alternative revenue streams.
On the flip side, Nashville’s market shows resilience compared to national trends. While downsizing is prevalent, the city's reputation as a corporate hub is bolstered by major players like TikTok, Oracle, and Amazon expanding their presence. These growing businesses might help offset losses from companies like AT&T by maintaining or even increasing demand for office space. As more businesses move in or expand, the overall property values could stabilize or rise, potentially leading to higher tax assessments in the future.
Finally, new construction in Nashville (around 7 million square feet since 2020, with another 3.1 million underway) could create a complex dynamic. While this adds to the tax base, higher vacancy rates might persist if demand doesn’t keep up with supply, possibly limiting the property tax revenue growth that might otherwise accompany new development.
In short, while AT&T’s downsizing reflects a national trend that could challenge property values and tax revenues, Nashville’s position as a growing corporate hub might cushion the blow by attracting new businesses and development.