Skyrocketing Commercial Lease Rates Stoke Fears of Bubble

Skyrocketing Commercial Lease Rates Stoke Fears of Bubble

Faced with what he said was a more than 50 percent rent hike, John Kepley opted to move his technology consulting firm Teknetex Inc. out of leased space at the Cummins Station office complex three months ago.

“It’s a fantastic building and it’s in the middle of everything,” said Kepley, who now subleases space from a friend as he ponders Teknetex’s next move. “It’s just that my business has changed and it wasn’t affordable for us anymore.”

With new high-rise towers rising downtown pushing Nashville’s top office rent to $40 a square foot, even older buildings are asking tenants to pay more in a landlord’s market with historic low vacancy rates. Some see the local leasing rate growth, which continued at an estimated 5 percent clip over the past year, as another sign of the Music City’s evolution into the big leagues and local rents after years of being stagnant catching up with the nation.

Cummins Station is hardly alone in raising leasing rates, but building owner Zach Liff said he’s gone overboard in working to accommodate tenants that fall on hard times. “I hope Teknetex feels like they were dealt with justly,” he said. “That’s important.”

Across Nashville, renewing companies are seeing a 10 percent to 30 percent increase over past lease rates, said tenant representation specialist Tim Stowell, whose clients include Kepley. He sees the combination of strong demand for area office space amid low vacancy translating into higher costs of doing business in Nashville for everyone.

“It’s kind of the perfect storm,” said Stowell, managing member in Nashville-based Corporate Real Estate Advisors. “This market makes it extremely tough for people to expand because of the cost and the lack of available space.”

In the recent first quarter, Nashville’s overall office rental rates (continue reading at Tennessean)

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