Tennessee’s industrial real estate market entered Q3 2025 in a strong, yet disciplined position. Across the state—from the logistics corridors in Memphis and Chattanooga to manufacturing hubs in Knoxville and the rapidly expanding scene around Nashville—occupancy remains healthy, rental growth modest but positive, and investment interest steady. While nothing suggests a frenetic boom, the fundamentals reflect a mature industrial market benefitting from Tennessee’s labor markets, transport corridors and business-friendly environment.
“Tennessee isn’t chasing flash. It’s about balanced growth: infrastructure, workforce, access and cost. That’s what gives this region staying power in industrial real estate.” — David Melton, Managing Broker, Pointe Commercial Real Estate
Vacancy / Occupancy:
Although full statewide vacancy figures for Q3 2025 are not publicly available, metro-level data provides guidance. For example, in the Nashville, Tennessee market, vacancy reportedly declined modestly in Q3 2025 to ~4.4% per one source. Given that Nashville is one of Tennessee’s strongest markets, it suggests that statewide vacancy for functional industrial space likely sits somewhere in the 4 – 6% range (lower in primary locations, higher in secondary/non-functional product).
Rental Rates / Growth:
Tennessee’s key markets continue to command solid rental levels. For instance, Nashville industrial rents were reported at ~$9.81/SF as of Q1 2025. This suggests that across the state, class-A industrial product may be in the $8-$11/SF NNN band, while second-gen or lower-spec space may fall into the $5-$8/SF range depending on region, access and yard/trailer capacity.
Demand Drivers:
Tennessee benefits from strong logistics corridors—especially along I-75 (Chattanooga), I-40/I-24 (Nashville), and I-55/I-269 (Memphis).
Manufacturing remains a bedrock: Tennessee’s manufacturing sector continues to expand, underpinning demand for industrial/manufacturing space.
Capital is still flowing into industrial assets as investors seek yield and stable cash flow amid volatility in other asset classes.
“When you’re a market like Tennessee with multiple nodes—logistics, manufacturing, distribution—you’re less reliant on one story. That gives you durability.” — David Melton
Lease Terms: Typical lease durations for mid-box industrial (50,000-200,000 SF) are 5-10 years, with smaller flex spaces (10,000-50,000 SF) often 3-5 years. Escalations of ~2-3% annually or CPI-linked are common.
Concessions: In a market like Tennessee, where vacancy is modest, concessions are moderate. Landlords of Class A or well-specified buildings are less likely to offer large tenant improvement (TI) packages or free-rent months. By contrast, less desirable buildings (low clear height, poor truck access, limited yard) may need to compensate with more incentives.
Product Spec: Clear height (28’–32’+), ample trailer courts, yard/parking for trucks, proximity to interstates, and functional office build-out are what separate premium versus second-gen status.
“In Tennessee’s industrial market, product quality isn’t optional. Clear height, yard, access—they’re the difference between leasing fast and sitting vacant.” — David Melton
Supply Pipeline: On a national basis, industrial new deliveries slowed meaningfully in Q3 2025, helping maintain balance between supply and demand. In Tennessee markets, speculative new development remains measured—especially compared to overheated Sun Belt hubs. That supply discipline helps mitigate the risk of vacancy spikes.
Risk Factors:
Oversupply of lower-spec space still remains a potential vulnerability, particularly in fringe locations or with outdated infrastructure.
Labor constraints: While Tennessee has a solid labor base, certain corridors may face tighter labor or wage inflation pressures, which could impact occupier costs.
Macro-economic factors: Broader uncertainty around trade, supply-chain shifts or rising interest rates could affect demand for industrial space in the medium term.
Nashville / Middle Tennessee: Among the tightest industrial markets in the state, with vacancy dipping to ~4.4% in Q3, and asking rents climbing.
Chattanooga / Southeast TN: Strong logistics node, benefiting from I-75 and regional supply-chain relocation.
Memphis / West TN: Historically more affordable and logistics-oriented; depending on product spec, vacancy may be slightly higher, but value proposition is strong.
Knoxville / East TN & other secondary markets: Good-value options for occupiers; product specs vary, so rent and vacancy variances are greater.
“Tennessee’s diversity of industrial markets is a strength, but also a reminder: one size doesn’t fit all. Knoxville, Memphis, Chattanooga—they each have their own rhythm.” — David Melton
Investors continue to target Tennessee industrial assets for the following reasons:
Yield pickup compared with overheated mega-markets.
Supply-demand balance remains healthy.
Occupier demand remains stable.
Cap rates in Tennessee are slightly wider than the largest coastal markets, but investors are comfortable given the fundamentals. Value-add opportunities exist in secondary product where upgrades (roof, clear height, yard/trailer parking) can improve leasing velocity and value.
“For investors, Tennessee offers a compelling story: stable tenants, functional assets, multiple markets – the ingredients for reliable industrial real estate.” — David Melton
Vacancy to remain stable: Given modest new supply and steady demand, expect vacancy for well-spec industrial product to hold in the ~4-6% range for the next few quarters.
Modest rent growth: Rent growth is likely in the 2-4% range statewide for quality product. Premium nodes (e.g., Nashville, Chattanooga) may outperform; secondary markets may lag.
Demand to remain steady: Logistics, manufacturing supply-chain optimization, and regional distribution will drive leasing activity.
Focus on specs and location: Owners and investors should prioritize building quality, access and flexibility to maintain competitiveness.
Watch macro variables: Talent competition, infrastructure investment (or lack thereof), and capital markets conditions (interest rates, debt availability) remain key.
“In the next 12-18 months, Tennessee’s industrial market isn’t going to make headlines for overheating—but it doesn’t have to. It’s about smart, sustainable growth—and that’s exactly what we’re seeing.” — David Melton
Now is a good time for occupiers in Tennessee to evaluate space and secure favorable terms, particularly if their requirements demand modern specs and prime logistics.
Owners/landlords should invest in building/park upgrades (yard depth, clear height, truck courts) to maintain competitiveness.
Investors should continue to assess Tennessee industrial assets for stable return and long-run upside, with focus on location, tenant mix and asset condition.
Product quality matters more than ever—good location and execution will outperform simply being in a “hot” market.
Nashville Industrial Q3 2025 vacancy ~4.4% (Cushman & Wakefield)
Nashville vacancy ~5.8% as of Q1 but among lowest in Southeast
National industrial market indicators: supply tapering, vacancy staying stable ~7.1% (U.S. data)
Tennessee real-estate/economic outlook: strong labor force, population growth, and manufacturing expansion
Enter your details below and we will be in touch.
Providing Commercial Real Estate Brokerage Services for Chattanooga, Cleveland and Dalton
Office • Retail • Healthcare • Hospitality • Industrial • Warehouse • Land • Multi-Family
