Nashville has left the woes of the go-go '80s behind. Overbuilding in office and retail space is a thing of the past, rents are up and vacancy rates in all sectors are down. But developers and investors, many of whom were caught in the boom/bust cycle of the last decade, are wary. They are waiting for the ideal set of circumstances before they dot the final i's and cross the final t's on new construction.

Nashville's economy has grown steadily over the past year and a half. It can boast two new Fortune 500 corporate headquarters, Magne Tek and Columbia/HCA, as well as a big spurt of downtown retail development driven by Gaylord Entertainment's mammoth investments in "The District" along historic Second Avenue. South Central Bell has constructed the city's tallest building downtown. Suburban malls such as CoolSprings Galleria in Franklin are fanning the flames of continued rapid retail development and even the nearly abandoned 100 Oaks Mall, the first mall in the region, is slated for a new tease on life.

The retail, hospitality and office markets should continue their upward course based on expanded tourism brought to Nashville by the lure of downtown entertainment, the new Nashville-London direct air route and the city's growing reputation as a good place to do business, analysts say. Fortune magazine last year ranked Nashville the nation's fifth best business city, largely because of its low costs and good quality of life.

The only real limitation to a new cycle of steady growth is industrial space, says Janet Miller, senior marketing manager in the economic development department of the Nashville Chamber of Commerce. There is a limited supply of large blocks of commercial and industrial space and that's putting a cap on what kind of companies we can attract. It's certainly negatively impacting Nashville now."

Cindy Morse, a real estate analyst for Centennial Inc., a Nashville real estate marketing firm, agrees. Occupancy rates and rent hikes warrant new office construction in this market, she says. "However, due to the development-conservatism created in the mid-1980s, projects will need to be 60% to 70% preleased," she says. And investors are looking for stringent proof new development is risk-free.

Nashville's retail development should reflect the region's strong economy, low unemployment and retail sales of more than $11 billion in 1994, according to a report prepared by Trammell Crow Co. for the Greater Nashville Chamber of Commerce. However, a vast amount of regional mall space was built between 1989 and 1991 -- about 850,000 sq. ft. per year. The result is now a relatively high 14% vacancy rate, in a market where mall vacancy had historically hovered below 5%, according to a report by Centennial Inc. This has given new mall construction a breather and shifted the focus to solidifying anchors and bringing on new big box retailing.

Two of the brightest spots in the recent retail market are the 1,200-acre master-planned area around CoolSprings Galleria about 13 miles south of downtown Nashville, developed by Hines Interests Limited Partnership, and the explosion of development on downtown's Second Avenue.

Historic Second Avenue underwent a transformation in 1994, driven by Opryland's Gaylord Entertainment Co.'s large investments along the strip.

Much of the downtown frenzy was fed by the city's decision to build a 20,000-seat sports and entertainment arena downtown. It is slated for completion in 1996, and the city is working hard to attract a major league sports team as an anchor.

"The commercial development on Second Avenue, that has been a real key," says Bill Buzzman, vice president and state manager of Old Republic Title Co. "It attracts attention and then you see the impact throughout the eight-county area."

Elsewhere retail development has been limited to anchor and big box categories, according to Centennial's report. Even the forlorn 100 Oaks Mall, built in 1967 and nearly empty for years, is finally getting a new lease on life. Memphis-based Belz Enterprises, a major developer of retail outlet malls and luxury hotels, has announced plans for a multi-anchored 500,000 sq. ft. mall with five new anchor tenants.

"100 Oaks will be unlike any shopping center in Nashville," says Andrew J. Groveman, senior vice president, marketing and administration, of Belz. The mall will focus on off-price and outlet shopping.

The largest amount of retail space, and the lowest rents ($7-$11/sq. ft.), continue to be in the Rivergate section, north of downtown, according to a report by CB Commercial, a major Nashville commercial real estate company. Rents are highest in the West End/Green Hills section of town, from $13 to $23 per sq. ft., says Tony Martin, CB Nashville's senior vice president and senior managing officer. Rents in neighborhood and community strip malls averaged just under $10 per sq. ft. in 1994, according to Centennial.

Nashville's skyline has changed considerably with the completion of the $100 million, 650,000 sq. ft. South Central Bell Tower. Music Row has also experienced a boom of construction in the past year or so, with glittering new corporate offices for ASCAP, BMI and SONY-Warner. Despite these high-profile projects, office construction has stagnated in Nashville since early 1993. Occupancies and rents are just reaching the point where new speculative construction might be considered. Still developers are cautious, especially in high-end markets like West End/Green Hills.

"The rental rates have yet to get to a point where it makes sense to build on West End," says Warren Smith of Mid-South Financial, a prominent investment company.

Higher interest rates are not the problem, Smith says. Availability of permanent financing because of investor caution is the crunch. Developers have to demonstrate not only the overall strength of the market, but obtain a long-term lease with a nationally creditworthy tenant for at least 70% of the space before lenders will loosen the purse strings, says Centennial's Morse.

For these reasons, the amount of vacant space in the Nashville office real estate market is continuing to drop. A safety valve is the substantial amount of sublet space available, according to a first quarter report on major competitive multitenant office space by CB Commercial Real Estate Group.

The downtown vacancy index was posted by CB at 16.57% for the quarter ending March 3 1, down from 16.94% in the same quarter of 1994. The suburban vacancy rate is tighter, with a vacancy rate of 11% for the quarter, down from 12.21 the previous year.

"There's a story beyond the numbers," says Martin. "There's a significant amount of sublease space available for lease by secondary users as a result of corporate downsizings, and that amount is likely to increase as the year progresses."

In response, rental rates are going up in almost every part of town but the sublease differential provides users with a nice cushion, since per square foot rates are about $21 on primary rental and $15 for sublease, Martin says.

The downtown office market has about 375,000 sq. ft. of Class-A space available in various buildings, a substantial amount of that in the First Union Tower where Aetna and IBM had offices that have been downsized. South Central Bell's consolidation of most of its operations in the new downtown tower has had ripple effects in other parts of town.

Nevertheless, leasing activity remains strong and absorption rates are going in the right direction. Absorption figures for the first quarter were -127,107 sq. ft. versus a positive absorption rate during the same period last year, according to CB.

The Nashville metropolitan area is actively promoting manufacturing growth, to balance the strong growth in its retail, commercial and service industries. Nashville currently has 105 million sq. ft. of industrial space, with a vacancy rate in owner/user space of only 2% to 3%.

Older bulk-warehousing and manufacturing is available, Morse says. What's tight right now is modem high-tech warehouse and distribution space in prime locations, she says. Vacancy rates for industrial space dipped to their lowest in nearly a decade at 11%, land prices are their lowest in five years, but Morse says Nashville's industrial market is still not showing any signs of relief.

Industrial development is continuing to push away from Davidson County into the surrounding eight "doughnut" counties, where more land is available at lower prices. Still, the entire MSA has a crimp on potential industrial expansion, however, because of its non-attainment status on federal clean air standards.

Industrial property sales last year were split between users and investors. The largest investment transaction was the sale of Space Park South for $23 million, a 1.3 million sq. ft. industrial warehousing space off Interstate 24 in southeastern Davidson County.

Nashville's strong economy and low unemployment are finally being felt in the multifamily residential real estate market, which has been sluggish. Completion of 180-unit Water Place apartments in Bellvue in early 1994 were the first new apartment units to come on line in Nashville since 1991, a study by SPL Corp. shows. Since then eight new apartment complexes have broken ground, which should b completions this year to about 2,000 units, the study by the Memphis real estate firm says. This new construction is coming at a time when apartment occupancies are bursting at the seams (above 97%) and rents are up nearly 10% for old construction and just over 9% for new units in the past year. Occupancy rates are above 99% in the downtown and West End apartment markets, according to SPL's latest report for the first quarter of 1995.

The tide of tourism continues to rise in Nashville, lifting the hospitality market with it. Seven million tourists and one million conventioneers swarm to Nashville each year. Opryland Hotel and convention center is in the middle of a $175 million expansion, the largest construction project in Nashville's history. The feel will be that of an old river city like Natchez, says Tom Adkinson, Opryland's director of public relations. When the expansion is complete, the hotel will be the largest in the country outside of Las Vegas, and it boasts an unusually high 85% occupancy rate because of the heavy convention traffic. When the addition is complete, Opryland Hotel will have 600,000 sq. ft. of meeting and exhibit space, the most of any hotel in the world.

With predictions of even heavier tourism in Nashville, the hospitality sector elsewhere in the city may show further growth and higher occupancy. Downtown, the refurbished Hermitage Hotel and the more modest Quality Inn both have new owners and a new Hampton Inn is on the drawing boards at CoolSprings.