Nashville has the most expensive industrial space among its Southeast peers

Tenants reportedly looking to other markets as they get priced out of Nashville

According to Toby Jorgensen at CoStar Analytics, "Thanks to the market’s massive growth, industrial rental rates in Nashville, Tennessee, have not only reached a record high but are now the highest among its peer cities within the Southeast. Nashville’s average triple-net asking lease rate for industrial space in the third quarter of 2024 was $11.38 per square foot, a 6% increase year over year and nearly 10% higher than average asking rents in the next priciest Southeastern market.

Soaring demand has driven up rents as logistics companies, retailers and manufacturers have leased almost 10 million square feet over the last year. The demand has taken rents to an unseen level in Nashville, as industrial space is now more expensive there than asking rents in Atlanta and Charlotte, North Carolina, and is even more than double the average in Memphis, Tennessee.

Some market participants have even reported potential occupiers in the market for new space refusing to agree to the rent demands and looking to cheaper, nearby markets.

“One of the biggest pitfalls we’ve experienced is losing tenants to other markets because our lease rates are the highest amongst our peer cities in the Southeast” said William Sisk, partner at Nashville’s Lee & Associates office, in an email. “The sheer volume of institutional investors and developers looking to enter the Nashville market has driven up pricing faster than some tenants may be willing to pay.”

Historically, Nashville’s industrial market has had robust demand due to its central location and proximity to consumers nationwide. More than 40 million consumers are located within a 325-mile radius of downtown Nashville, allowing truck drivers to reach distribution centers throughout the region within a day’s drive. Logistics providers, retailers and manufacturers are adding more warehouses to deliver goods faster and cut transportation costs.

The robust demand has been no secret to developers, who have added more than 26 million square feet of industrial space (warehouse, manufacturing and flex space) over the past three years. This includes the 980,000-square-foot facility occupied by WebstaurantStore within the Speedway Industrial Park and the 925,000-square-foot Walmart distribution center in Lebanon.

Another 6.1 million square feet is under construction, including an 860,000-square-foot distribution center within the Earhart Industrial Park in Wilson County. Griffin Partners will own the facility, which has yet to be leased.

Despite the strong demand, construction has outpaced leasing momentum as the market’s availability rate has slowly risen since 2022. Occupiers and brokers hope this will bring some relief to the soaring rents. However, with rents increasing roughly 6% year over year in Nashville, the new supply has hardly slowed the region's highest rents.

Any rent relief stemming from increased supply may only be temporary as construction starts have moderated during 2024. Newly constructed industrial development in Nashville is projected to fall throughout 2025, helping reduce the supply-side pressures and likely tightening any available space within the market further.

Rising construction costs and land scarcity continue to put pressure on the supply side. However, with a vacancy rate that is still below the national average, the Nashville market could be a target for developers to move forward on new projects."

As Nashville's industrial market sees significant rent increases and rising demand, property tax impacts are also likely to follow this trend. Higher industrial lease rates often lead to an increase in property valuations, which can cause local governments to reassess properties at a higher rate. This means that as landlords and developers see rising income potential from properties, the assessed value of these properties increases, creating a greater tax liability for property owners.

Local government relies on property taxes to fund essential services, so as property values rise, tax revenue grows as well. In Nashville, where industrial rents have reportedly climbed to $11.38 per square foot — a rate higher than in neighboring cities like Atlanta and Charlotte — tax assessments may adjust upward. This could impact businesses that own property in the area, as they may face higher operating expenses due to increased property taxes on top of rising rent.

Additionally, if tenants are priced out of Nashville and seek space in surrounding areas, local governments in those regions could see higher tax revenues as industrial demand spills over into less expensive markets. For Nashville, the benefits of higher property tax revenue from valued industrial properties may be tempered by a shift of business activity to nearby cities with more affordable space.