National & Nashville Multifamily Market

Nationally, multifamily properties are in high demand.

As more and more people move to the urban core, apartments become the best option.

Especially since we’re seeing a trend toward maintenance-free living and walkability.

Many developments have come online to feed this growth, so vacancy rates have actually increased with demand.

Nashville saw a slight decrease in vacancy rates in 2017 – 2016 was a peak year of delivery for Nashville multifamily.

 

Investment Activity Gains Speed

We saw a national uptick in multifamily investments in 2017.

Other than industrial properties, every other asset class was down (see our Office Market Update here).

Retail has been struggling this cycle due to the Amazon effect, pushing investors into more secure assets.

Because of this demand, cap rates have been compressed sub 5%.

 

Rent Growth Strong

As demand increases, so will rents.

And we’re seeing this rent growth strong across the country.

Orlando lead the pack at 7% year over year rent growth, while Nashville was in the bottom 20 metros.

I’m not too surprised at that since the Nashville multifamily market was oversaturated with deliveries in the last 2 years.

We saw a year over year increase from .5% to 1.2%.

While this is expected to decline, we’re not forecasting negative rent growth.

After all – we’re still seeing somewhere around 70 people a day moving to Nashville and they’ll have to live somewhere.

 

Most Growth in the South

Many jobs are leaving the North for the South (essentially blue states vs. red states).

Behemoths like AllianceBernstein are making their way to cities that are much more economically friendly.

The AB move alone will bring 1,050 jobs to Nashville, most of whom will likely land in the CBD and help fill the MF vacancies.

 

The Nashville Economy

Nashville’s economy is powerful.

Home ownership has declined 6% nationally, adding approximately 7.5 million renters to the market.

The Music City has certainly experienced this trend, too.

Our decline is consistently increasing and is now above the city’s historical average.

Decline in home ownership is good news for Nashville multifamily investors.

 

Job Growth

Since 2001, we’ve added 300,000 jobs to the MSA – from 700,000 to over 1,000,000 in just 17 years.

An increase of 43% and rising.

Although the price of living has significantly increased this cycle, it’s still affordable compared to other large metros.

In fact, we’re still outpacing Raleigh and Philadelphia in terms of household growth.

The city has been averaging about 4% annual jobs growth – due in part to strong millennial attraction.

Metro Nashville is 4th in the country for millennial attraction, only outpaced by DC, Charlotte, and Raleigh.

To put that jobs growth in perspective – that’s twice the national average and higher than Miami.

Nashville’s job growth is expected to slow down but remain positive.

 

Nashville Continues to Grow

As Nashville’s population creeps to 2 million, the city has reached an historic low of 2.4% unemployment.

24,000 jobs were added last year alone, with business services, logistics, and leisure / hospitality leading the pack.

The MSA is in the top 20 for household growth in the country and is experiencing nearly double the national average.

And we’re not seeing high demand in multifamily, alone.

Single family home development is also increasing across the metro.

But home affordability is pushing more renters into the market.

The median home price today is $250k, compared to $200k in 2011.

A 25% increase in only 6 years.

 

Multifamily Development in Nashville

Nashville was #1 in the country last year for multifamily real estate expansion.

The city increased its inventory by 35% in in 2017.

Compare that to Nashville’s sister city, Austin, who added 32% to their inventory.

Although vacancies are sitting at higher than the national rate (9% vs 7%), demand outpaces supply.

The price of land and construction in Nashville has drastically driven up rent prices, causing new residents to look to the suburbs for housing.

With our population growth, it’s only a matter of time before the Nashville multifamily market stabilizes and deliveries increase again.

 

Submarket Activity

West End and the CBD dominated deliveries in 2017.

The Aertson, The Skyhouse, and 505 contributed well over 1,000 units among the three projects.

Development increased in West End / CBD, Madison / Rivergate, and Wilson County, while we saw a decrease in Williamson County and Murfreesboro.

With the exception of Wilson County, development has largely been focused on the urban core.

Again – we’re heavily trending on live, work, play communities and walkability.

 

Construction Continues

Nashville dropped from #1 to #2 in the country in terms of inventory under construction.

Not bad considering we fell behind Miami, which has about 2.5x the population.

The development timeline is increasing.

At the beginning of the cycle, we were looking at an average 10 months to delivery.

With all of the construction in Nashville, that has increased 40% to 14 months, adding significant carry costs for developers.

However, higher than national vacancies and longer construction timelines aren’t scaring away development.

We’re currently tracking:

• 4,500 units under construction in West End / CBD

• 2,000 units under construction in Williamson County

• 1,000 units under construction in Sumner County

• 11,000 units currently proposed

And our average lease up rate has increased from 16 units to 19 units per month – a sign of a strong multifamily market.

Multifamily Market Rents

Nashville’s multifamily market rent growth has declined below the national average.

Why?

There’s simply a lot of competition on the market right now.

We don’t have an issue of too many available units, just too many units delivered at the same time.

Concessions are high – new and old product alike are offering one to two months free rent.

Class A hasn’t been able to push rents up nearly as much as Class B & C product (20% vs. 40% since 2010).

 

Multifamily Investments

Prices are soaring in the Nashville MSA.

Nashville multifamily investment sales volume peaked in 2017 at $1.4 billion.

Prices have doubled since 2010 – with major contributors from West End / CBD, Southeast Nashville, and Williamson County.

Top transactions in 2018 include:

• IMT 8th South: $76,725,000 ($232,515 per unit)

• West 46th: $34,000,000 ($198,830 per unit)

• The Cleo $67,750,000 ($232,818 per unit)

• City Side Flats $24,550,000 ($122,139 per unit)

California still leads the pack in outside investment (40%), with New York (25%) closely trailing behind.

 

Nashville Goes International

Canadian investment in Nashville picked up last year, as well, which I found interesting.

Foreign investment is certainly coming to Nashville – The Cauble Group is currently working with an Australian investor on multifamily and commercial investments.

Nashville’s strong growth has brought it to the international investment table.

Although growth has slowed a bit, the outlook is strong thanks to demand drivers like Nashville’s unmatched culture and companies like AllianceBernstein.

 

Interested in other types of commercial product? Take a look at our 18Q1 office report, industrial report, retail report. 

Data courtesy of Costar.