Federal downsizing isn’t over, and in Nashville, what’s left on the table could reshape the office market.
More than 400,000 square feet of the federal government’s office leases in Nashville could be terminated by the end of next year, posing a fresh threat to a market already grappling with high vacancies and shifting tenant demand, the Nashville Business Journal reported.
The U.S. General Services Administration has 20 leases spanning 650,000 square feet across the metro. So far, it has canceled three leases spanning 25,000 square feet, according to Avison Young.
That includes a 14,000-square-foot lease for the Food and Drug Administration, 6,000 square feet for the National Park Service in Gallatin and 4,000 square feet for the Social Security Administration in MetroCenter.
More cuts are likely coming.
Roughly 411,000 square feet of federal office space in the region will be in “soft-term” status by the end of next year, meaning it can be terminated with minimal notice, Avison Young said.
The Department of Government Efficiency’s sweeping national cuts to office space earlier this year axed 485 leases spanning 5.8 million square feet.
Nashville escaped one major hit when the GSA revoked its termination of a 135,000-square-foot IRS lease in Franklin, but analysts said much of the remaining square footage is still vulnerable.
The cuts have moved from easy targets to more strategic decisions, factoring in security requirements and geographic overlap across agencies, Avison Young’s Grant Hayes said.
Office vacancy in Nashville reached 22.5 percent last quarter, with leasing activity picking up slightly due to a construction slowdown and growing demand for Class A space, according to JLL. But the impact of GSA exits could ripple across older, lower-tier buildings.
Many vacant assets could be repositioned rather than converted outright, though some properties could be razed for multifamily redevelopment, Avison Young’s Lisa Maki said.
— Judah Duke
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