Nashville’s Office Glut Fuels Hotel Conversions

Office-to-hotel conversions are no longer a niche play in Nashville. They’re fast becoming a defining feature of the city’s post-pandemic real estate cycle.

Nearly 2 million square feet of office space across Nashville is planned or underway for conversion into hotel use, according to research from Avison Young’s local office, the Nashville Business Journal reported. That puts Music City among the most aggressive conversion markets in the country, as a soft office sector collides with a white hot tourism economy.

By share of inventory, Nashville now ranks third nationally, with 3.9 percent of its office stock targeted for conversion, trailing only Northern Virginia and Washington, D.C., and ahead of Dallas-Fort Worth and Manhattan. Downtown Nashville is even more extreme: Roughly 13 percent of its office inventory is being eyed for adaptive reuse, according to Avison Young.

The shift is a relatively new phenomenon for a market that, until recently, absorbed new office space with ease. But a shakier leasing environment, a wave of distressed sales and sharply discounted pricing have opened the door for developers to rethink aging towers that struggle to compete with newer buildings, the Nashville Business Journal reported.

Several high-profile deals this year highlighted the trend. New York-based Dreamscape Companies paid $55.25 million in August for the Fifth Third Center downtown, a 62 percent discount from its 2019 sale price. Permit records show the buyer is planning to convert the building’s roughly 490,000 square feet of office space into nearly 500 hotel rooms.

Music executive Scott Borchetta and Jon and Joe Fields are taking a similar approach at the 20-story Philips Plaza tower. They paid $29 million for the building in September and plan to convert at least half of it into hotel and Airbnb space, according to permit filings.

Other projects include Dolly Parton’s conversion of the 211 Commerce building into the Songteller Hotel, and plans to redevelop Parkway Towers after its recent sale at a $21 million loss.

At the same time, Nashville’s office demand has become increasingly bifurcated. Trophy and A-plus creative space is outperforming, with top-tier buildings accounting for more than a third of leasing activity this year. New projects at Nashville Yards and the Neuhoff District are capturing that demand, leaving older stock behind.

Hotels, meanwhile, remain a safer bet. According to the outlet, Nashville continues to post some of the strongest hotel occupancy figures in the country, supported by record-setting tourism and a steady pipeline of new luxury properties.

— Eric Weilbacher