The vacancy rate for office space in Cool Springs reached nearly 19% in the final quarter of 2020, but the long term prospects for Williamson County’s business district remain promising.
Cool Springs currently has the highest vacancy rate for any office submarket in the Nashville area, according to data collected by the research firm Avison Young. The vacancy rate has risen from about 10% at the end of 2019. Cool Springs has more than 7.6 million square feet of available office space.
The vacancy rate in Brentwood’s Maryland Farms office market was nearly 13% at the end of the year, up from about 10% at the end of 2019. Maryland Farms has about 6.5 million square feet of available office space.
“What I think has happened during COVID is we have had a freezing of one side of the supply-demand equation and not the other,” Thomas McDaniel, the director of office properties for the Tennessee real estate development firm Boyle, said.
Last year, Boyle completed a large section of the McEwen Northside mixed-use development in Cool Springs, which will eventually have up to 750,000 square feet of office space. The company is also developing office buildings in Berry Farms.
In the years leading up to 2020, developers were eager to build in Cool Springs and anticipated lots of demand for office space. Even before the pandemic, that led to a noticeable increase in vacancy rates.
As the coronavirus pandemic continues, companies are asking employees to work from home and are hesitant to sign leases for new office space. That means much of the new office space built over the last few years is now sitting empty.
“It’s definitely a higher vacancy rate than anyone who is in that market would like to see," McDaniel said. "That said, the Cool Springs market has the most velocity of any submarket in Nashville, and that's for good reason. It's such an attractive submarket … Cool Springs ends up being the go-to submarket, above Brentwood, above Midtown and for many people above downtown.”
The relatively small size of the Cool Springs submarket also makes it susceptible to large swings in vacancy rates. If a few large tenants send their employees home, or vacate existing office space and move into new buildings, the vacancy rate can swing by a few percentage points.
The big picture is that the market is likely to bounce back to more normal vacancy rates soon.
McDaniel expects that developers will pause construction while vacancy rates are this high. That means there won’t be a glut of space when the coronavirus pandemic subsides and companies go back to the office. In that scenario, vacancy rates snap back to low levels soon after the coronavirus pandemic ends.
That’s assuming companies go back to leasing just as much office space as they were before the pandemic. However, it’s still not clear how the coronavirus pandemic will change the way companies use their office space.
McDaniel said the long term outlook for Cool Springs is even rosier. It remains a top-shelf destination for large corporate offices because of the county’s strong school system and high quality of life. For developers buildings structures that will last decades, that long term outlook is much more important than short term trends.
"The most important thing for a developer is to not have a short term time horizon," he said. "You can never predict exactly what market you'll deliver into ... If you're a long-term owner, then you can handicap for the fact that you might deliver in a slow market and you know that over a five-year period or a thirty-year period the market will normalize."