Job Growth, Desire for Urban Living are Fueling Nashville’s Apartment Boom
Ten years ago, the urban Nashville multifamily inventory consisted of a small handful of institutional-sized assets, offering sparse amenities and unit finishes that left much to be desired. Fast forward to 2016 and the seemingly insatiable demand by residents to live in the eclectic, urban enclaves that Nashville offers has resulted in more than 5,000 units delivered over the last few years, with nearly 8,000 additional units set to deliver over the next two years. The standard of the assets being delivered continues to raise the bar, as developers look for a competitive edge and renters have demonstrated their willingness to pay a premium, with rents in top locations flirting with $3.00 per square foot.
The absorption pace has accelerated each year, seemingly limited only by the number of units being delivered to the market. When looking at the entire metro area, not just the urban submarkets, absorption topped 6,000 units in 2015, with new supply totaling approximately 5,960 units.
A significant portion of this demand is from Millennials, who traditionally prefer to live in urban neighborhoods, and with Nashville ranked as a top 10 destination for Millennial in-migration, this trend is likely to continue. Fueling the urban residential boom is a surge in office and employment growth, with several new office buildings under construction and a direct vacancy in the CBD boasting a healthy 11.8 percent. Notable developments taking shape include the new Bridgestone Americas headquarters in SoBro, which will feature nearly 2,000 employees and HCA’s expansion, adding another 2,000 jobs to this emerging location on the north end of the Gulch.
The number of employed persons in Nashville increased by 27,000 during 2015, representing a 3 percent gain. The largest gains came in the professional and businesses, leisure and hospitality, financial activities and the construction sectors. The employment growth over the last four years has been astonishing, totaling nearly 120,000 jobs. And with speculative office development underway and several large employment announcements taking effect in the next several years, the growth is forecasted to continue.
While other markets dealing with an uptick in supply are facing an onslaught of concessions, Nashville has weathered the storm with limited free rent. Concessions are averaging a meager 0.4 percent, compared to the long-term average of 3 percent. Asking rents in the urban submarkets are averaging $1,816, or $2.27 per square foot, compared to the overall market average of $1,427, or $1.57 per square foot.
It’s important to note that Class B and C assets are seeing tremendous demand as well. For example, in the Hickory Hollow submarket, a location predominately comprising 1980s and 1990s assets, rents now average $992, up from $819 in 2012. In 2015, average rents grew by 7.6 percent, and with segments of renters finding themselves priced out of the Class A areas, Class B and C assets should continue to see above average rent growth.
With the transformation of the urban fabric of Nashville, the gentrification of certain neighborhoods has led to distinct areas with their own unique charm. Historically the urban submarket was dominated by the West End, anchored by Vanderbilt University. Now areas such as the Gulch, Germantown, East Nashville, Midtown, SoBro, 12th and 8th Ave. South and Music Row are emerging as submarkets of their own, and subsequently it is likely that investors making bets in these evolving pockets of Nashville will be rewarded in the coming years.
— By Russ Oldham, Senior Vice President, CBRE Nashville. This article originally appeared in the February 2016 issue of Southeast Real Estate Business.