Tennessee Cities Are Dominating The List of Emerging Tech Metros

Tennessee is home to a number of emerging tech markets, with Nashville showing a 190 basis point decline in vacancy in the second quarter and Knoxville clocking in with a decline of 150 bps, according to an analysis from Moody’s Analytics CRE.

The firm’s David Caputo and Thomas LaSalvia note that overall, “emerging tech market office vacancy continued their excellent run of form in the second quarter and vastly outperformed established tech markets,” with emerging locations showing a decrease of an aggregate 20 basis points in Q2 while established ones increased by 20 bps. The national average increased by 30 points.  And among those emerging markets, cities in the Volunteer State were big standouts.

Nashville in particular “has much of what is needed to compete on the national stage,” Caputo and LaSalvia say. The city had some of the best overall office stats in the nation in Q2, with office vacancy decreasing by 190 basis points and asking rents increasing by 0.4%. The region is located in a low-cost-of-living state, and Nashville is “very much on the radar of skilled labor looking to move from more expensive coastal locations, as no state income tax and relatively low single and multifamily home prices continue to be attractive,” they write. Diversity is also a strength for the market, as 23% of tech workers in Nashville are people of color (comparatively, San Francisco is only 8%). And the city’s healthcare industry generated $84 billion in global revenue, making it a “magnet” to healthcare tech startups.

On the vacancy front, emerging markets Nashville and Knoxville were followed by Baltimore (-60 bps vacancy change), Atlanta (-50 bps change) and Lexington (-50 bps).

Caputo and LaSalvia have engaged in extensive research on emerging tech markets in the aftermath of the pandemic: an analysis from the pair earlier this year found that “generally, a well-managed company in a great location understands the tug-of-war between efficiency gains from remaining in an established cluster and the increasing cost of business to stay there.”

“Concentrations of labor, intermediate input and information sharing are classic examples of efficiency gains when in an established market,” the pair said. “The high tenant demand tends to increase both rent levels and wages particularly in areas with limited buildable land. If costs overshadow benefits, firms will look elsewhere and likely land in cheaper spots, but with fewer benefits, particularly human capital or skill.”