Marcus & Millichap

Tennessee Office Market Report

Second Quarter 2018 Outlook

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Expanding Tenants Shrink Vacancy Rates; Investors Eye Tennessee Office Assets

Corporate expansions bode well for office vacancy in Nashville. A lower cost of doing business than many of the nation’s larger markets continues to lure companies to the Nashville metro. AllianceBernstein, a global money management firm, is moving its headquarters from New York to the metro and bringing with it more than 1,000 jobs. As corporations expand, the need for quality space has picked up, keeping metrowide vacancy roughly 350 basis points lower than the national average. The limited availability of quality space has also placed upward pressure on rent, reaching a new cyclical peak.

Slower to recover, Memphis posts vacancy declines as hiring picks up. After two years of slow employment growth, hiring in Memphis has begun to pick up and gains in office-using jobs outpaced the national rate during the year ending in March. Increased hiring has boded well for vacancy improvement during the past 12 months, with the rate registering the first year-over-year decline since 2014.

Demand outpaces supply, keeping vacancy still tight in Knoxville. Vacancy in Knoxville is the tightest among the Tennessee metros, as few completions and steady demand have plummeted the rate roughly 400 basis points from the prior cycle peak. This trend will continue through the remainder of the year, with just one office project slated for completion.

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