As someone who has lived here for the past decade, I regularly hear phrases like, “It’s an exciting time to live, work and play in Nashville.” I love hearing those comments and am honored that our team plays a role in the city’s growth.
However, is that optimism cooling, or is Nashville uniquely primed for continued success in the multifamily space?
Following a white-hot streak of rent growth and transaction velocity during the economy’s resounding pandemic recovery, Nashville joins the rest of the nation in a transitionary period influenced by interest rate hikes and inflation. But for many reasons, our city is better prepared than most.
Approximately 130,000 residents have moved to Nashville in the past five years, resulting in some of the highest apartment construction rates in the country. In fact, according to Marcus & Millichap’s Research Services division, Nashville is expected to take over the top spot for inventory growth nationwide in 2023, with roughly three-fourths of the metro’s new construction located in Nashville proper.
While those numbers are certainly impressive, Marcus & Millichap’s National Multifamily Index, which ranks major markets based on forward-looking economic indicators, places Nashville in only the No. 28 position for 2023. This is due to the expected cooling of rent growth caused by to the current construction pace and increased vacancy.
However, the full story for the next generation of Nashville contains many reasons to be optimistic.
There are still plenty of development projects that keep the city buzzing and job growth humming. The massive East Bank neighborhood development, primarily fueled by Oracle’s $1.2 billion investment in creating a 1 million-square-foot campus along the Cumberland River, aims to bring thousands of jobs in addition to the 8,500 promised by 2031 from Oracle.
Another hot development topic is the city’s proposed $2.2 billion investment in replacing Nissan Stadium, home of the NFL’s Tennessee Titans, which is also located on the East Bank. The plan involves not only an enclosed stadium to turn the Titans’ home into a year-round option for concerts and events, but also a large retail and residential development surrounding the stadium.
Developments like these are drawing more jobs and more people to Nashville, and the need for this housing construction growth is justified. In all, the metro expects to add 2,500 jobs in 2023, with many more to come as these developments come to fruition.
While the urban core draws the most attention due to its exciting future, some investors are more inclined to look to the suburbs. Murfreesboro, long heralded as one of the top Nashville submarkets by national publications, could see an increase in activity due to its minimal construction pipeline and the lowest vacancy rate in the market.
Whether in Nashville or in one of its attractive submarkets, other factors to instill confidence in the multifamily sector include the benefits of renting and the current challenges of buying a home. Borrowing costs have increased dramatically, and the national affordability gap between mortgage and rent payments doubled year-over-year to $904 in the third quarter of 2022.
With inflation tightening household budgets, even millennials now past the median age of marriage are choosing to rent rather than buy. Demand that typically goes to single-family homes is now being reallocated to multifamily apartments.
Despite current economic uncertainty, multifamily investment remains relatively stable among commercial real estate sectors, primarily due to the essential nature of housing. Combined with the city’s forward-looking planning, our multifamily outlook is positive.
I look forward to hearing more people speak of Nashville as an exciting destination to live, work and play. My family is proud to call this metro our home, and our Marcus & Millichap team looks forward to collaborating with our multifamily partners as more families come and feel the same.
— By Jody McKibben, First Vice President and Regional Manager of Marcus & Millichap. This article was originally published in the February 2023 issue of Southeast Real Estate Business.