Q2 2023 Nashville, TN Multifamily Market Report

Market Overview

After H1 2023, multifamily demand in Nashville has made a notable comeback compared to H2 2022. However, net absorption has yet to amount to the record levels seen in 2021. Now, the 12-month net absorption totals 5,000 units, much lower than the market’s historical average of 12,000 units. This slowdown in absorption comes at a time of a near-record pipeline of 22,000 units under construction, causing the vacancy rate to rise to a new record high. Additionally, the rapidly increasing interest rates and stricter underwriting standards are impeding the flow of real estate deals. Transaction volumes have experienced a consecutive decline over the past three quarters, with Q1 2023 recording the lowest sales volume per quarter since Q2 2020. On a positive note, this activity aligns with pre-pandemic patterns, suggesting a return to normalcy rather than a complete collapse.

Highlights

• Based on the latest data set released by the U.S. Census Bureau, the population of the Nashville metro area increased by approximately 36,000 individuals from July 2021 to July 2022. This population growth is a significant benefit for the future of Nashville’s multifamily market.
• In H1 2023, asking rents in Nashville experienced a slight increase of just under 2%. While the growth rate may have been modest, it was still a positive development that owners and property managers appreciated.
• Downtown Nashville contributes to nearly half of the total units under construction and is one of the country’s leading submarkets in terms of the number of units currently being constructed.

Rents | Vacancy | Construction

At 10.8%, Nashville is experiencing the highest vacancy rate in 20 years.

Nashville vacancies are projected to reach as high as 12.3% by the end of the year. The increase in vacancy rates and competition among renters in Nashville has also led to a rise in concession offerings. By the end of Q2 2023, approximately one out of every three residential communities in the area was providing some form of concession to attract tenants. These concessions ranged from waived fees to as much as two months of free rent in certain locations like Downtown Nashville. In comparison, two years ago, only one out of every 20 communities was offering such special deals. Regarding rents, despite rental growth during the traditionally busy spring and summer leasing seasons in H1 2023, it is unlikely that these gains will continue in H2 2023. Both Q3 and Q4 2023 are expected to witness a decline in asking rents.

The development of multifamily properties has reached unprecedented levels in Nashville. Compared to the 50 largest markets in the country, Nashville stands out with the fifth-highest proportion of units currently under construction in relation to its existing inventory. Suburban markets such as Williamson County, Wilson County, and Murfreesboro have witnessed significant construction activity in the last 12 months.

Sales

Nashville, By the Numbers in the Last 12 Months

• Units Under Construction: 21,630
• Units Delivered: 11,655
• Vacancy Rate: 10.8%
• Asking Rent Growth: -1.2%
• Average Price Per Unit: $218,000
• Sales Volume: $2.3B
• Sale Comparables: 71

With the ongoing increase in interest rates during Q2 2023, the multifamily sales volume in Nashville is witnessing a continuous decline. The trend of falling transaction volume has persisted for three consecutive quarters. While there is a possibility that pricing has reached its highest point, newly constructed properties in the urban core of Nashville are still being sold for $350,000 per unit or even higher.

Over the past 12 months, the total transaction volume in the market amounts to $2.3 billion.

Why is Nashville a Business-Friendly State?

• HP, Oracle, Tesla, Apple, Amazon, and Fidelity, are expanding their operations in this region.
• No state income tax
• #1 in the country for:
  • Global access and infrastructure
  • Advanced industry job growth
  • Investment target in 2022 and 2023, according to PWC
• Hottest job market in the southeast, according to the Wall Street Journal
• #1 U.S. market to watch in 2023, followed by DFW and Atlanta

Nashville’s Economy and Job Growth

• Major employers include – Oracle, Amazon, Facebook, General Motors, Chewy, and Phillips.
• According to Oxford Economics, Nashville is expected to experience an average yearly increase in employment of 0.9% between the years 2023 and 2025, and this places it in 14th position out of a total of 51 metropolitan areas.

Submarket Highlights

Downtown Nashville

The multifamily submarket in downtown Nashville has been continuously evolving since the beginning of 2018. Over 12,000 units, about 50% of its existing inventory, have been added. This number is expected to continue growing, as the area has one of the largest under-construction pipelines compared to other submarkets. The attractiveness of the region to developers is due to its continuously expanding employment opportunities. This growth is fueled by the arrival of prominent companies like Amazon, AllianceBernstein, and soon, Oracle. As a result, the demand for housing is anticipated to rise significantly in the coming years.

• 12-Month Delivered Units: 4,584
• 12-Month Absorption Units: 2,313
• Vacancy Rate: 18.8%
• 12-Month Asking Rent Growth: -3.2%

Southeast Nashville

Southeast Nashville houses several prominent employers and the Nashville International Airport. The area has experienced consistent growth in white-collar jobs, attracting a wave of affluent renters. Moreover, a substantial population of blue-collar workers contributes to the demand for workforce housing in this submarket.

• 12-Month Delivered Units: 1,892
• 12-Month Absorption Units: 782
• Vacancy Rate: 10.1%
• 12-Month Asking Rent Growth: -0.9%

Williamson County

Williamson County stands out as a sought-after suburban area in Nashville, acclaimed for its top-notch schools, a robust presence of office-using employers, and a wide array of retail and entertainment choices. The region’s impressive demographic and job growth patterns have served as strong motivations for developers to invest in construction projects, resulting in a remarkable expansion of the submarket’s inventory, which has more than doubled since 2010.

• 12-Month Delivered Units: 270
• 12-Month Absorption Units: 282
• Vacancy Rate: 9.1%
• 12-Month Asking Rent Growth: -1.4%

Murfreesboro

In Q2 2023, the multifamily submarket in Murfreesboro experienced a decline, as the negative net absorption combined with an influx of new housing units caused the vacancy rate to increase. This is a significant departure from the rapid reduction in vacancies seen during 2020 and 2021. However, it’s worth noting that in early 2022, vacancies had reached all-time lows, allowing for some softening in the market compared to historical trends.

• 12-Month Delivered Units: 541
• 12-Month Absorption Units: 64
• Vacancy Rate: 7.5%
• 12-Month Asking Rent Growth: 1.9%