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The Nashville metropolitan statistical area (MSA) comprises 13 counties and a population of approximately 1.45 million, which represents a 47.2 percent increase since 1990, nearly 2.5 times the national average of 19.2 percent for the same period. With a host of world-class companies like Dell, Nissan, HCA and Sprint PCS, Nashville has become a destination for a young, progressive generation of families.
Over the past decade, the Nashville area saw tremendous increases in several areas: population growth in the region has gone from 53rd
in the United States to 38th and income growth in the region rose from 138th in the United States to 49th. That takes the region from five percent below the U.S. median household income average to seven percent above it.
Diverse and Growing Economy
The Nashville region’s economy is diverse and thriving. Low unemployment, consistent job growth, substantial outside investment, and a well-trained labor force combine to make Nashville an attractive city for business. Nashville enjoys an unemployment rate that is historically below the national average, ending the year at 6.95 percent (compared to 8.3 percent for the nation).
Nashville’s diverse economic mix is led by the manufacturing and healthcare 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 last two years, which created approximately 4,000 new jobs, including Nissan’s relocation of its U.S. corporate headquarters to Nashville. According to a recent University of Tennessee study, the Nissan move alone has produced an annual economic impact of more than $500 million.
Multifamily Demand is 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 has not suffered from severe valleys or benefitted from robust peaks. The “low” point in the Nashville market came in the first quarter of 2009 when the average occupancy dipped to 90 percent and the average rent to $746.
At the end of first quarter 2012, the average occupancy increased to 95 percent from 93 percent for the same period in 2011. In addition, during that same period, we have seen rents increase from $776 to $790, which exceeds pre-recession levels. Concessions have virtually ceased.
Pipeline
The effects of a robust recovery are not only increases in rents and occupancies but also construction. The trough of new completions came in 2007 and 2008 when 674 and 558 units were completed, respectively. Since the Nashville recession was not very deep and the recovery has been very swift, we are making up for lost ground with new construction.
In 2011, Nashville delivered 1,271 units, and in 2012 we delivered nearly 2,000 units. We expect to deliver more than 3,000 units in 2013. The majority of recent new construction has been in West End/Downtown — where rents for new product begin around $1.70 per square foot and go up to $2.25 per square foot and higher — and in Franklin, where there has been little new supply over the last decade and new suburban product can achieve rents in the $1.30 per square foot range.
The West End/Downtown market is currently seeing the greatest influx of new product. Either in lease-up or under construction there are nearly 2,000 units. The properties are currently coming on line, such as Bristol Development and Associated Estates’ Vista Germantown and TriBridge and Carlyle’s 11 North, cannot keep up with absorption demands. Both properties are leasing in excess of 40 units per month and rents are rising in the process. Other developers that are throwing their hats into the urban ring are Market Street with Pine Street Lofts, Southern Land and JP Morgan with Elliston 23, and North American Properties with Park 25.
Franklin is the other submarket that is witnessing the greatest amount of growth, after more than a decade of no apartment construction. The area has seen a tremendous amount of job growth with corporate relocations, like Nissan. When Southern Land completed the 258-unit Dwell in 2009, it was the first new property in the submarket since 1998. There are approximately 1,500 units currently under construction or in lease-up in Franklin, including Crescent/MAA’s Venue at Cool Springs; SWH Residential Partners’ Grove Franklin; Bristol Development and Bell Partners’ Bell Historic Franklin; Southern Land’s second phase of Dwell; and Bristol Development and Northwestern Mutual’s Tapestry in Brentwood.
We expect to see continued construction in West End/Downtown and Franklin this year, but we will also see construction in other suburban markets. There are currently projects in the pipeline in Bellevue, Hendersonville, Murfreesboro, and Mt. Juliet.
Looking Forward
Nashville’s diverse economy and its high barriers to entry (both politically and topographically) have allowed robust recovery where absorption is driving vacancies down. The decline in vacancies from their peak has been a huge boost for effective rents, which have risen in each of the last seven quarters and are currently at their all-time peak, poised to keep growing.
Seasonally adjusted absorption has been positive in each of the last nine quarters, but the pace of this absorption has slowed in each of the last 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. Although vacancies will trough below five percent in 2013, the solid supply pipeline for the coming years will cause vacancies to rise again to the mid-five percent range by 2015.
— Scott Tyrone, pricinpal broker for Tennessee, ARA/Southeast