Nashville has long been famous for its world-class music scene, but now the metro is becoming widely known as a magnet for young professionals and businesses, as well. With a host of world-class companies including Dell, Nissan, Hospital Corp. of America (HCA), and Sprint PCS, Nashville has become a key destination for a young, progressive generation of workers and families.
Over the past decade, the Nashville area has enjoyed tremendous increases in several demographic areas, including population growth (from 53rd in the United States to 38th) and income growth (from 138th to 49th), figures that have taken the region from 5 percent below the U.S. median household income average to 7 percent above it. Helping drive these impressive improvements are the MSA’s strong economy, low unemployment, and educated workforce. With attributes like these, it’s no wonder Forbes magazine last year ranked Nashville No. 3 on its list of “Next Big Boom Towns in the U.S.”
Top-Notch Economy
The Nashville region’s economy is diverse and thriving. The city was recognized by economic research firm Policom Corp. in 2011 as the second-strongest for economic strength based on long-term tendency to grow in size and quality.
According to the Bureau of Labor Statistics, nonagricultural employment for the 12-month period concluding with December 2011 increased 2.2 percent, for a net gain of 16,300 jobs. The employment sectors showing the highest growth for the year were leisure and hospitality (4.9 percent increase; 3,700 new jobs) and professional and business services (4.2 percent jump; 4,200 jobs). Nashville also enjoys a low unemployment rate that is historically below the national average, ending the year at 6.95 percent (compared with 8.3 percent for the nation).
Nashville makes it easy for new businesses to come to town, too. In 2010, for the second-straight year, it was voted the No. 1 U.S. city for business expansions and relocations by Expansion Management magazine. (The publication also ranked Nashville among the top 40 hottest real estate markets in the country.)
Nashville’s diverse economic mix is led by the manufacturing and health-care industries, followed by publishing and printing, finance and insurance, music, transportation, and tourism. According to the Nashville Chamber of Commerce, the city has added operations of eight corporate headquarters in the past two years, which has created approximately 4,000 new jobs. Most notably, Nissan’s relocation of its corporate headquarters to Nashville has “elevated the city’s stature as a prime place to do business” (Southeast Real Estate Business, January 2010). According to a recent University of Tennessee study, the Nissan move alone has produced an annual economic impact of more than $500 million.
In January 2012, the U.S. Chamber of Commerce ranked Tennessee the No. 1 state for low business taxes and regulations, while Kiplinger ranked Nashville No. 3 among its “Top 10 Best Value Cities for 2011.” Indeed, the word is out about this city’s growing success in so many areas important to the multifamily industry.
Demand Consistently Strong
The Nashville apartment market, consisting of approximately 93,000 units, is currently experiencing significant increases in rent and occupancy. The Nashville market is a consistent performer that historically hasn’t suffered from severe valleys or benefitted from robust peaks. The “low” point in the city came in the first quarter of 2009, when the average occupancy dipped to 90 percent and the average rent fell to $746.
By the end of the first quarter of 2012, the average occupancy had increased to 95 percent from 93 percent for the same period in 2011. During that same time, rents increased from $776 to $790, exceeding pre-recession levels. Concessions have virtually ceased.
The effects of a robust recovery include increases not only in rents and occupancies, but construction, as well. The trough of new completions came in 2007 and 2008, when 674 and 558 units, respectively, were completed. Because the Nashville recession wasn’t very deep and the recovery has been very swift, the metro is now making up for lost ground in new construction. In 2011, Nashville delivered 1,271 units; this year, the area expects to deliver nearly 2,000 units, with more than 3,000 units anticipated in 2013. To date, the majority of new construction has occurred in the West End/Downtown submarket, where rents for new product range from $1.70 to $2.25 per square foot, followed by the Franklin submarket, which has seen very little new supply over the past decade and new, suburban product can achieve rents in the $1.30-per-square-foot range.
| Rents Are Climbing in Nearly Every Nashville Submarket | |||
Submarket Rent |
Q1 2011 Rent | Q1 2012 | Percentage Change |
| Bellevue | $904 | $893 | -1.23% |
| Donelson/Hermitage | $736 | $755 | 2.58% |
| Franklin ? | $1,033 | $1,067 | 3.29% |
| Charlotte ?? | $604 | $696 | 15.23% |
| Mount Juliet/Lebanon | $845 | $879 | 4.02% |
| Murfreesboro | $743 | $754 | 1.48% |
| North Nashville | $805 | $824 | 2.36% |
| Nolensville Road | $686 | $704 | 2.62% |
| West End/Downtown | $1,233 | $1,286 | ?4.30% |
| Overall average | $776 | $790 | 1.80% |
West End/Downtown currently has nearly 2,000 units either in lease-up or under construction. The properties that are currently coming on line, such as Bristol Development and Associated Estates’ Vista Germantown and TriBridge and Carlyle’s 11 North, can’t keep up with absorption demands. Both properties are leasing in excess of 40 units a month and raising rents in the process. Other developers that are throwing their hats into the urban Nashville ring include Market Street with Pine Street Lofts, Southern Land and J.P. Morgan with Elliston 23, and North American Properties with Park 25.
Franklin is the other submarket that’s witnessing the greatest amount of growth after more than a decade of no new apartment construction. The area has seen a tremendous amount of job growth with corporate relocations from companies such as Nissan. When Southern Land completed the 258-unit Dwell in Franklin in 2009, it was the submarket’s first new property since 1998.
Approximately 1,500 units are currently under construction or in lease-up in Franklin, including Crescent/MAA’s Venue at Cool Springs, SWH Residential Partners’ Franklin Crest, Bristol Development and Bell Partner’s Bell Historic Franklin, Southern Land’s Phase II of Dwell, and Bristol Development and Northwestern Mutual’s Tapestry in Brentwood.
In 2013, we expect to see continued construction in West End/Downtown and Franklin, but we’ll also see construction in other suburban markets. Currently, projects are in the pipeline in Bellevue, Hendersonville, Murfreesboro, and Mount Juliet.
Nashville’s diverse economy and high barriers to entry have afforded the metro a robust recovery in which absorption has driven vacancies down from a peak of nearly 10 percent to the low–5 percent range as of the first quarter of 2012. This decline has provided a huge boost to effective rents, which have risen in each of the past seven quarters and are currently at an all-time high and are poised to keep growing.
Seasonally adjusted absorption has been positive in each of the past nine quarters, although the pace of this absorption has slowed in each of the past five quarters, primarily due to the lack of new supply. The product that is coming on line is benefitting from market-high rents and absorption. However, the solid supply pipeline for the coming years will cause vacancies to rise to the mid–5 percent range by 2015.
