Most available retail space in Nashville, Tennessee, is in older properties
According to Toby Jorgensen at CoStar Analytics, "Robust population growth and a booming tourism industry have been driving Nashville, Tennessee’s retail demand, a combination that has made it one of the tightest markets in the country. However, the region’s low availability rate comes with some drawbacks, as construction hasn’t kept up with demand, making it difficult for retailers to find new, desirable space.
Many tenants prefer newer space, but construction costs have remained high, which makes it difficult for new retail projects to pencil unless retailers are willing to pay well above market average rents. As a result, most available retail space in Nashville is older, and availabilities are particularly low for newer retail properties.
With a vacancy rate of 3.1% for existing retail properties, Nashville remains the seventh-tightest market in the country among metropolitan areas with a population of over 2 million people. Nationally, 4.7% of retail space is being marketed as available for lease.
Additionally, the pace of construction starts has declined over the last several quarters. The market has already seen the amount of newly constructed retail space decreasing, and the lack of construction starts will keep Nashville’s retail market tight.
The oldest retail properties — those built in 1979 or earlier — make up about 30% of Nashville’s retail inventory and 42% of the market’s available space, the latter of which is significantly larger than any other vintage grouping. However, despite making up the plurality of available space in Nashville, the availability rate within the oldest retail buildings is still only 4.3%.
Some of this older retail space is set to be demolished as several of Nashville’s older retail properties are large regional malls planned for redevelopment. The 500,000-square-foot RiverGate Mall, built in 1971, is primed for redevelopment as tenants are all on short-term leases, with most having termination or relocation rights from the landlord. A master plan for the 650,000-square-foot Global Mall at The Crossings redevelopment divides the 78-acre Antioch site into four districts that include retail shops, traffic improvements, manufacturing, hiking paths and workforce development.
Nashville experienced a retail building boom in the early 2000s as e-commerce grew but was not fully established. In all, 27.8 million square feet, or 22% of the market’s existing inventory, was built between 2000 and 2009, the second most of any group. Despite being the second-largest group, only 11% of Nashville’s available retail space dates from that decade, and the availability rate of those properties is just 1.5%, the lowest of any group.
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Retail development built between 2010 and 2019 accounts for 9% of the market’s inventory but only 5% of Nashville’s total retail availability. The largest buildings within this group include single-tenant big-box buildings with tenants including Walmart, Rooms to Go, Sam's Club and Life Time Fitness.
The newest properties, those built since the start of 2020, have the highest availability rate. They are only 4% of the inventory and 8% of the total available space.
Some of these properties were built speculatively and are still seeking tenants, such as the newly constructed Stateline retail and office development. The 93,000-square-foot property finished construction during the first quarter of this year and is 60% leased. For new leases signed within the last year, the average marketing time for a space is seven to eight months.
Demand for retail properties in Nashville remains high, and with construction declining, the market is likely to remain tight for the foreseeable future."
Older retail properties sitting vacant or unleased in Nashville could have a significant impact on property taxes, both for property owners and the broader municipal revenue base. Here's how:
Decreased Property Values: When older retail spaces sit vacant or are difficult to lease, property values could decline, particularly for those properties that are less desirable due to age, location, or lack of modern amenities. Lower property values typically result in lower property tax assessments, which could reduce the amount of revenue that local governments collect from these properties. This can affect city budgets, particularly if the vacant properties are concentrated in key commercial areas.
Impact on Redevelopment Efforts: Many older retail spaces in Nashville are set to be redeveloped, such as the RiverGate Mall and the Global Mall at The Crossings. These redevelopment projects often require substantial investment and planning, and during this transition, property tax revenue could temporarily decrease if the properties are devalued or sit empty while awaiting redevelopment. The long-term goal may be to raise property values through these redevelopments, but there could be a short-term tax revenue gap while these properties are in transition.
Shift in Tax Burden: If older retail properties lose value due to prolonged vacancies, it may shift the property tax burden to other parts of the city. With less tax revenue coming from commercial properties, homeowners or other businesses might face higher property taxes to make up for the shortfall in the city’s budget.
High Costs for New Construction: As the article notes, construction costs remain high in Nashville, which makes it difficult for new retail projects to pencil out unless tenants are willing to pay above-market rents. This could mean that fewer new projects are being developed, keeping the supply of available, modern retail space low. With fewer new spaces contributing to the tax base, Nashville's reliance on older, less valuable retail properties for tax revenue could become a more pressing issue.
Potential for Incentives or Tax Breaks: In an effort to encourage redevelopment of vacant or underused retail properties, the city might offer tax incentives or breaks to developers or property owners. While these incentives can stimulate redevelopment and increase property values in the long run, they might reduce immediate tax revenue, further affecting municipal budgets in the short term.
In sum, the presence of older, vacant retail properties in Nashville creates a situation where property tax revenue could stagnate or decrease, unless there is significant reinvestment or redevelopment of these spaces. The city's tight retail market, combined with high construction costs, complicates efforts to address the issue, making property tax impacts a critical consideration for both local government and property owners.