Q&A With Randy Wolcott, Northstar Real Estate Advisors

Nashville office and multifamily are known nationwide to be hot but what about industrial? We chatted with Northstar Real Estate Advisors president Randy Wolcott about that hot property type.

Bisnow: Is the Nashville industrial market as hot as the office and multifamily markets, in terms of leasing and development? If so, why?

Randy: Rates for warehouse space in Nashville continue to see double-digit annual increases as landlords recover from the tenant-controlled market from 2008 to 2014. Incremental tenant demand coupled with the lack of new construction during that period has resulted in a limited supply of available existing space.

Demand is so strong that new space is being leased during construction. For example, Prologis is now completing construction of the second of two 150k SF buildings, and both buildings were leased while under development.

Bisnow: What's the outlook for industrial tenants?

Randy: Tenants that benefited from negotiating leases during the Great Recession are now faced with 20% and higher rent increases. Also, companies looking to own their facilities are finding few opportunities. On the other hand, those higher rates, combined with the insatiable demand for new product from investors flush with cash, have made it possible for developers to build new facilities for tenants who need them.

Bisnow: What's a major challenge for industrial owners and developers?

Randy: The boom in hotels, apartments, condos and office buildings has caused a shortage of available subcontractors for skilled and unskilled trade. So construction costs are still rising. Also, the inflationary effect of low unemployment, limited availability of workers and rising wages for warehouse and manufacturing employees could also limit growth for tenants, if companies can't hire the full-time and temporary employees they need to expand their business. 

Bisnow: What's your outlook for the Nashville industrial market in the next 12 months?

Randy: Several developers are getting ready to start new construction, including HSA building 652k SF at Commerce Farms in Lebanon. This spec warehouse should be leased during construction, with partial building lease proposals already in play. We're currently working on three other projects with tenant demand totaling 2M SF. The tightest segment is the sub-100k SF market, because of the lack of industrial zoned land and limited new construction of buildings able to accommodate tenants in the 50k SF range.