BREAKING DOWN THE NASHVILLE IOS MARKET WITH CHARLES HAWKINS CO

Who are the largest IOS owners/buyers targeting the Nashville market?

Since COVID/2020, Nashville has seen a huge influx of institutional investors looking to break into the Nashville/Middle Tennessee markets. We would not say there is a largest IOS owner/buyer in our market as all the big guys have purchased here and are continuing to identify and transact on IOS/transportation style assets.

What is the metro's attitude towards IOS uses, and how will that impact future supply?

Nashville has long been a high barrier to entry market for users and owners not only in the IOS sector, but in the Industrial asset class all together. Nashville/Davidson County is about out of larger tracts of industrial development land, forcing developers to think outside of the box when planning their next ground up project. Existing industrial supply in the CBD is being bought up and redeveloped, driving vacancy rates down and rental rates up for IOS and smaller industrial users. When looking at our surrounding cities and counties, many have “caught on” to all the institutional builders looking to build in their markets and have since become stricter on pushing development through zoning and planning.

Which submarkets show the most IOS activity? 

Nashville’s Southeast Corridor has historically housed about 50% of our market’s industrial inventory. In South Davidson and Rutherford Counties, you will find many traditional IOS users down there from publicly-traded logistics/transportation companies to both national and local heavy equipment rental and sales. Assets down this way do not come to market often and most of what is available from a leasing aspect gets filled up quickly upon delivery to market.

What IOS type is most lacking (truck terminal, contractor yards, cross-dock, etc.)?

We find that many of the newer sites that are being developed are your traditional facility size 10,000 – 15,000SF on larger tracts of land: 6-10 acres. The tenant pool for these sizes are a whole lot smaller than your pool would be for the same size building on 2-5 acres. If we had the pockets (and the land site) to build today, our recommendation would be to build a shop on 2-5 acres.

How have rent levels moved up or down from pre-COVID to now? 

Rent and sale prices essentially doubled from pre-COVID to now. In the years 2020 through mid-2022 if you had a site, you had a buyer and the tenant to follow and never needed to bring sites fully to market. In my opinion, those days have come and gone, and we are back to having to go through the traditional marketing process. Many new deals are not penciling because of the current lending environment and people who bought a while ago are still having to demand those high rents to get needed returns for their asset. If you pull a search in our market today, you will find about 20 different “IOS” style properties that are active for sale or lease… about this time last year my guess is that there would have been 3-5 available.

What is the tenant mix between national users versus local SMBs?

We see a mix of both, and both are active now. What the local SMB’s are struggling to deal with at the moment are their leases from 2018-2019 expiring and getting wide eyed at their renewal terms they receive from their landlord. Many of these users will go scour the market looking for more favorable terms elsewhere, only to realize they do not exist and being forced to stay put and eat the higher terms they were originally offered.

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