SOUTHEAST SNAPSHOT, APRIL 2006
Nashville Multifamily Market
During the past two years Nashville and the surrounding area have shown positive economic indicators highlighted by solid job growth. The region is seeing improved multifamily fundamentals primarily because housing costs are increasing faster than income and interest rates continue to rise. Vacancy rates are improving, with the current rate at 5.5 percent compared to 7.3 percent in 2004 and 7.7 percent in 2003. Rental rates are averaging approximately $700, with residents paying between $492 and $1,211.
Derrick N. Bloom, Principal,
Apartment Realty Advisors
With these combined factors the Nashville multifamily market is expected to experience strong demand and increased investor attention.
At the end of 2005, between 2,500 and 3,000 new units were under construction illustrating significant growth in the corridor. Much of this new development was occurring outside Metro Nashville/Davidson County due to limited supply of multifamily sites and the area’s unique topography. In addition, high land costs continue to fuel multifamily development as part of larger multi-use land projects. All of these trends point to an increased value of existing multifamily properties.
In addition to the conventional projects that are currently underway in the Nashville market, developers are also engaged in various subsidized-apartment projects. Recognizing the employment growth in the submarkets, the goal is to attract tenants from the existing stock of Class B apartments and encourage corporate relocations to the region.
These evolving trends in Nashville have also caught the attention of outside developers. A number of out-of-state developers are reviewing the market for development opportunities, specifically developers from the Atlanta area. Tarragon and TDK are examples of developers who have recently entered the Nashville market.
Every major city seeks some level of downtown renewal, and with the creation of high-end amenities and living spaces Nashville is making the right moves to see that it becomes a reality. It’s hard to ignore the Giarratana Development and Novare Group condominium developments in downtown Nashville. They will have a tremendous impact on shifting the focus back to downtown and the benefits of an urban lifestyle.
Tony Giarratana and Novare Group partnered to build the 289-unit Cumberland and The Viridian, a 305-unit high rise. As further evidence of strong consumer demand, the Viridian is already 90 percent pre-sold 1 year before its scheduled completion date. Unit prices range from $150,000 for a one-bedroom to more than $1 million for a penthouse.
Other projects underway include Bennie Dillion, an 86-unit condominium conversion project and Signature Tower, a 750-unit tower that is slated to be Tennessee’s tallest skyscraper.
Due to the high land-cost, zoning and neighborhood opposition, the majority of development is occurring in the outlying submarkets of Nashville.
Economic and population explosions will fuel steady growth in areas down the southeastern Interstate 24 corridor ranging from the airport, Antioch and LaVergne/Smyna all the way to Murfreesboro.
The Murfreesboro submarket leads the city in new construction with six new projects under construction as of third quarter 2005. According to the Bureau of Labor and Statistics, Rutherford County (Murfreesboro) had the largest percentage jump in employment for a large county for the year ending 2004 and is currently one of the fastest growing counties in the United States. Murfreesboro has approximately 800 units scheduled for completion this year with more on the drawing board.
Overall, Nashville is a growing market that should remain attractive to developers and investors alike. Because the population is growing and the job outlook is promising, opportunities exist in both the metropolitan area and the outlying suburbs for properties across the spectrum.
— Derrick N. Bloom is a principal and Vincent C. Lefler is a broker with Apartment Realty Advisors in Nashville, Tennessee.
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