Nashville Emerging as a Magnet for High-End Apartment Development
Nashville has recently found itself in unfamiliar territory as a national leader in terms of apartment construction activity. Most of what’s under way in The Music City is high-end development, and some is coming from national developers who previously paid the metro little attention.
In 3rd quarter 2012, a total of 3,053 units were under construction in Nashville. That represents about 2.8% of the metro’s inventory base and puts the metro among the top 10 nationally for inventory growth.
That’s a marked difference from the metro’s historical norms. Nashville averaged only about 1,800 units under construction at any given time during the last construction cycle. And over the past decade, there has been only other year – 2005 – in which the metro’s inventory base expanded by roughly 3%. Nashville’s average annual expansion rate is closer to 1%.
The Spotlight is Shining on Central Nashville
So why is The Music City getting so much attention now? The answer is a mix of economic and historical factors that have made fertile ground for high-end product.
The economic downturn claimed about 5.8% of Nashville’s workforce. Since shifting into recovery mode two years ago, the metro has posted strong job gains. As a result, the Nashville workforce has climbed back to its pre-recession levels.
Such job growth made for strong momentum in the apartment sector coming out of the recession. Nashville was a top-performing market in 2010, ranking third nationally for revenue growth. The metro has also posted among the largest increases in rental rates since the recession.
In short, “Nashville was faster back to the party than other cities in terms of being able to support high-end development,” according to David Hanchrow, chief investment officer for Nashville-based Bristol Development Group.
In May, Bristol completed Vista Germantown, a 242-unit luxury property in the high-rent Central Nashville area. A whopping 88% of its units had been pre-leased by January. That strong leasing activity reflects the pent-up demand in the underserved urban core.
“Compared to a lot of peer cities, Nashville was way behind the curve in getting rental units in the urban core,” Hanchrow said. “We’re just now catching up.”
Hanchrow attributes that shortage to a lot of condo development in the years leading up to the recession. Many rental projects during that time were also converted to condo properties because of the strength in that segment of the housing market, Hanchrow said.
Indeed, condos represented about 15% of home sales in Nashville in 2007, according to the Greater Nashville Association of Realtors. But by 2011, the share dropped to 11%. And from 2007 to 2011, the annual number of condo sales decreased by more than half.
Central Nashville received about 600 apartment units last year. About 900 more are on tap.
More High-End Development in Franklin/Williamson County
But Central Nashville isn’t the only the area seeing more high-end apartment development. In the metro’s other upscale area, Franklin/Williamson County, about 1,150 units are under way. That area received one, 186-unit property last year.
Among the projects going on in Franklin/Williamson County is Venue at Cool Springs. The 428-unit project is the largest currently being built in Nashville. And the national developer Crescent Resources is building it.
The Charlotte, N.C.- based developer was attracted to the area for a variety of reasons.
“Nashville has a great quality of life and steady job growth, in a vibrant city that attracts young well-educated people,” Scott Makee, Crescent’s regional director, said in an email. “Unemployment is well below the national average, and salaries are above the national average. There have been a number of large corporate relocations … that are also adding to the demand driver. It’s a great recipe for apartment growth.”
Makee said two properties, completed in 2009 and 2010, “legitimized the higher-end rental properties in the Nashville” metro. One was Dwell at Midtown, by local developer Southern Land Company, in Franklin/Williamson County. The other in Central Nashville was Bristol’s 1700 Midtown, which changed names to Bell Midtown following the acquisition by Bell Partners, based in Greensboro, N.C.
“Both were ‘first’ in their submarket, larger professionally-managed properties achieving higher rents,” Makee said. Their success proved “that there was an underserved market of potential residents with higher levels of disposable income who were less price sensitive and more property/experience sensitive.”
Likewise, Crescent’s Venue at Cool Springs units are leasing at a rate of about 40 a month, fetching “some of the strongest garden apartment rents in the Southeast,” Makee said. “[That’s] great evidence that there is strong demand for new product in the market,” he said.
Other out-of-state developers with projects under way in Nashville include Atlanta-based TriBridge Residential and New York’s Stonehenge Investments. Dallas-based Vantage Development and Bell Partners each have a project in the planning stages.
Bristol is also has two ongoing projects totaling 611 units in Franklin/Williamson County.
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