Strong Job, Population Growth Drives Flourishing Multifamily Market in Nashville

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Nashville has quickly become one of the most active Southeast markets for multifamily, both in terms of development and sales. Driven by tremendous job growth, strong population increases, a pro-business climate and an educated workforce, Nashville’s remarkable multifamily growth is not overstated. From 2014 to 2017, more than 12,300 units are projected to enter the market, with another 9,000 that are planned or proposed. Concerns have arisen that Nashville’s supply will outpace the demand in the medium term. However, job growth indicators, sales activity and lease-up velocity indicate the contrary.

Nashville’s economy has surpassed the $100 billion mark with a 5.1 percent unemployment rate and a 4.2 percent GMP growth rate that is double that of the rest of the nation. Notable recent expansions include General Motors (1,800 jobs), Under Armour (1,500 jobs), Magna International (357 jobs), and FedEx (347 jobs) — all of which were announced in the second half of 2014. In addition, Bridgestone America has announced that it will consolidate its operations in Nashville adding 600 jobs. These expansions combined with immense foreign direct investment continue to fuel the area’s growth. According to IBM’s 2014 Global Location Trends Report, Tennessee ranks first in the nation in terms of investment from attracting foreign-owned companies.

Sales Reflect Demand
Since the start of 2008, Nashville has attracted more than 120 unique buyers, 152 unique sellers and a total of 200 transactions through 2015 year-to-date. In 2014 alone, there were 43 unique investors, which is up 43 percent from 30 in 2013. This increase in buyers — and 67 percent increase in transactions — demonstrates the flood of new interest in Nashville during the past year. In 2014, Nashville surpassed $1 billion in multifamily sales for the first time.

The increase in investor interest is commensurate with increased multifamily pricing. The market’s weighted average price per unit has increased significantly from the trough in 2009. As the above table illustrates, some prices have doubled for select properties that re-traded in 2013 and 2014 over their prior sale dates in 2011 and 2012. The five properties with the highest percent increases in price are highlighted in the above table.

Active Submarkets
Infill Nashville submarkets are drawing the most development attention. Of the non-infill Nashville submarkets, Brentwood/Franklin and Smyrna/Murfreesboro stand out in terms of development activity.

Melrose/Music Row. Seven properties are in lease-up or are currently under construction in this submarket for a total of 1,942 units and another 1,476 units that are planned. 23Hundred at Berry Hill stabilized at a rapid pace of approximately 50 units per month and has recently traded for slightly over $230,000 per unit. The Melrose (220 units), Artisan on 18th (153 units) and 1505 Demonbreun (202 units) are also currently in lease-up. Element Music Row (431 units) is the next to enter the market with pre-leasing to begin this summer.

Downtown/SoBro. As this area becomes more walkable, more multifamily developments are entering the market. The 61-unit Lofts at the Reserve is currently 80 percent pre-leased and 69 percent occupied and will lease up before new properties such as SWH Residential’s Terra House and Tony Giarratana’s SoBro Tower become contenders. Demand in this submarket is projected to increase with the move of Bridgestone Americas’ headquarters to SoBro.

West End/Vanderbilt. West End is a definite hot spot in this shining moment in Nashville’s multifamily history. The April 2014 sale of Elliston 23 in West End for over $287,000 per unit broke the ceiling on the market’s historical price per unit. Elliston 23 was built in 2013 and demonstrates the kind of premium that the Nashville market is now attaining.

Park Central recently completed construction in fourth-quarter 2014 and commands the highest average rents per square foot at approximately $2.70. The Dallas on Elliston delivered its first units in October 2014 and will be followed by The Acklen (320 units), Opus 29 (139 units) and 1818 Church (238), all of which are currently under construction.

Brentwood/Franklin. Brentwood/Franklin’s job growth is the highlight of greater Nashville’s economic rise. Brand new Class A office parks such as One Franklin Park are attracting major players such as HCA Holdings Inc. and Franklin American Mortgage. Three properties have recently leased up in Brentwood and Franklin: Grove at Shadow Green, District at Seven Springs and Dwell Phase II. District at Seven Springs stabilized at the fastest rate (38 units per month) of these three, but all are performing well with average rents per square foot in the $1.34 to $1.61 range.

Smyrna/Murfreesboro. Anchored and elevated by employers such as Nissan North America, the Smyrna/Murfreesboro submarket is also whetting developers’ and investors’ appetites. Ashton Creek Farms, Almaville Farms at Seven Oaks and Richland Falls all entered the market or stabilized in 2014, adding 593 units to supply. Grand Oak at Townpark, Arbor Brook and The Villages of Henley Station are not far behind, having delivered their first units in mid-2014 with projected completion dates in 2015 and 2016. Including all properties that are recently completed, under construction, or planned, this submarket’s multifamily inventory is projected to grow by over 2,500 units.

— By Scott Tyrone, Broker, ARA. This article originally appeared in the February 2015 issue of Southeast Real Estate Business.