Nashville has experienced record multifamily demand in recent years, largely driven by an influx of young professionals and the growing presence of high-earning jobs within the urban core. With investment activity flourishing at more than $2 billion in sales volume year-over-year as of the third quarter, Nashville remains poised as a city on the rise.
Nashville investors have continued to aggressively pursue the value-add and suburban submarkets in search of higher yield transactions, as the market’s average price per unit increased by over 15 percent year-over-year.
Momentum continues to build in Nashville, making it an attractive destination for national investors looking to maximize their investment potential.
Robbie O’Bryan
Director,
Cushman & Wakefield
Migration expansion
One of Nashville’s greatest strengths remains its ability to attract and retain its highly educated, millennial workforce. Nashville is among the fastest growing markets in the United States, with over 58,500 people projected to enter the workforce between 2019 and 2024. The market consists of a highly educated resident pool, with 33.1 percent having earned a bachelor’s degree or higher. That number is expected to increase by 13.4 percent through 2024, with four major universities producing college graduates who enter the Nashville workforce. With such a sophisticated talent pool to occupy the available healthcare and professional services jobs, the Nashville workforce exhibits continued high earning potential.
Cushman & Wakefield reports Nashville’s median household income at $88,666 as of 2019, up 19.1 percent from 2010, demonstrating the market’s ability to support rent growth trends in the area. As high-paying job growth continues to accelerate, the tightening labor market will continue to drive wage gains in the market.
Martha Kifle
Senior Research Analyst,
Cushman & Wakefield
Furthermore, corporate locations and rising home prices have shifted Nashville’s renter-by-choice demographic in recent years, now consisting largely of high-earning millennial workers. As workers aged between 25 and 34 currently make up the largest percentage of Nashville’s population at 15 percent, the market features a strong presence of a target renter segment.
Market fundamentals
The multifamily market in Nashville demonstrates growing demand as jobs and capital investment flock to the market, including job announcements such as AllianceBernstein, SmileDirectClub and Amazon’s 5,000-job downtown campus. With developers rushing to cater to the influx of high-earning office professionals, Nashville delivered over 29,000 multifamily units over the last five years, according to Axiometrics.
Despite the surge in inventory, the average vacancy rate across Nashville maintained a low 4.5 percent over the same period. However, with close to 9,000 units underway, Nashville’s vacancy rate is projected to increase to 5 percent further in 2020.
Brad Boston
Senior Associate,
Cushman & Wakefield
Similarly, rental rate trends in Nashville show continued promise for multifamily investors. Effective rents across Nashville grew 9.2 percent year-over-year and entered the high $1,200 range in third-quarter 2019, indicating potential for future rent growth trends.
Likewise, suburban Nashville also offers attractive returns, as investors and developers steadily trickle outside of Nashville’s urban core. Axiometrics reported third-quarter 2019 effective rents of $1,321 in West Nashville and $1,131 in Sumner County, growing 4.1 percent and 5.5 percent year-over-year, respectively. With in-migration expected to grow at an even faster clip over the next five years, landlords can anticipate more pricing power for market rents in the foreseeable future.
Capital markets
Investment trends at this point in the cycle indicate a transitionary period for Nashville as investors begin to explore beyond the market’s urban core. Investors and developers are demonstrating a growing attraction to suburban areas, citing rising construction costs and higher rents throughout the core submarkets. Nonetheless, Nashville’s downtown development pipeline remains extremely active as developers deliver highly amenitized mid-rise and high-rise product that will continue competing in the institutional space.
CoStar Group reports 40 percent of Nashville’s construction is located downtown, noticeably lower than the 50 percent level seen at its peak in 2016. While experts note there is a discerning renter class willing to pay for Class A amenities in Nashville’s urban core, experts ponder the sustainability of rent growth trends over the next several years.
Suburban submarkets continue to spark the interest of investors looking for higher-yield product outside of the urban core. Sumner County has delivered nearly 1,500 units since the beginning of 2018, fueled by the combined 1,300 jobs added from Beretta, ABC Technologies and Gap. Williamson County continues to lead suburban Nashville in terms of job growth and economic expansion, acting as a major office hub for the metro. Wilson County has also surged in recent years, with companies such as Under Armour and Amazon adding thousands of jobs across the submarket.
The current number of available sites for multifamily development in suburban Nashville is limited due to local zoning restrictions, but that may shift in the future as demand continues to grow.
Similarly, Nashville investors have overwhelmingly targeted the value-add space in recent years with the intention of implementing light renovations to compete with highly amenitized institutional product in the urban core market. Antioch remains a prime example, as the city continues approving zoning changes to authorize multifamily housing development. Additionally, most Nashville investors have elected to hold their value-add products long-term, spurring a highly competitive market for this asset class.
— By Robbie O’Bryan, Director; Martha Kifle, Senior Research Analyst; and Brad Boston, Senior Associate at Cushman & Wakefield. This article originally appeared in the February 2020 issue of Southeast Real Estate Business.