Nashville Multi Family Real Estate Investing

Why is Nashville Multi Family Real Estate a Great Investment?

Nashville, Tennessee's multifamily real estate environment boasts several positive features. Overall, Nashville's multifamily real estate environment benefits from its economic growth, population expansion, development opportunities, tourism and entertainment industry, education and healthcare institutions, quality of life, and transportation infrastructure. These factors make it an attractive market for investors.

Understanding the Nashville Multi-Family Market Statistically

• Economic Growth: Nashville is experiencing rapid economic growth driven by diverse sectors such as healthcare, music and entertainment, tourism, technology, and education. This economic vibrancy creates a strong job market, attracting young professionals and contributing to the demand for multifamily housing.

• Population Growth: Nashville has seen significant population growth in recent years, fueled by factors such as job opportunities, a vibrant culture, and a relatively affordable cost of living compared to other major cities. This population expansion drives demand for rental housing, particularly in multifamily properties.

• Tourism and Entertainment Hub: Nashville is a renowned destination for tourism and entertainment, drawing visitors from around the world. The city's thriving entertainment scene, including live music venues, festivals, and cultural events, contributes to the desirability of living in Nashville, supporting the multifamily real estate market.

• Development Opportunities: Nashville's ongoing urban development and revitalization projects present opportunities for investing in multifamily properties. Developers continue to build new apartment complexes and mixed-use developments to meet the growing demand for housing in the region.

• Education and Healthcare: Nashville is home to several universities, colleges, and healthcare institutions, including Vanderbilt University and the Vanderbilt University Medical Center. The presence of these institutions creates a steady demand for rental housing near campus and medical facilities, supporting the multifamily real estate market.

• Quality of Life: Nashville offers a high quality of life with its vibrant cultural scene, outdoor recreational opportunities, and southern hospitality. The city's relatively affordable cost of living compared to other major metropolitan areas also contributes to its appeal to renters, supporting occupancy rates and rental growth in multifamily properties.

• Transportation Infrastructure: Nashville has a well-developed transportation infrastructure, including highways, public transportation, and an international airport. Access to transportation hubs enhances the desirability of multifamily properties, particularly those located near transit nodes.

   

   

Current Market Overview (Q1 24)

Nashville's multifamily market is seeking stabilization after a record-setting wave of supply inundating the area. By the close of 2023, more than 11,000 units opened their doors. That was an astounding total, especially considering that not one of the previous 15 years leading up to then ever once topped 9,000 units.

Keeping pace with that number of units has been challenging, even as demand increased by about 85% year over year in 2023. Thus, it may take several quarters of even above-average demand by Nashville's standards to catch up to the sheer number of units opening their doors. Indeed, demand has topped the 9,000 unit mark once in a calendar year since the pandemic. Thus, even though demand has been soaring above historical norms, it hasn't been able to keep pace with the record-setting number of openings.

The ever-present supply-side pressures have resulted in higher vacancy near a 20-year high at 11.1%. That is an overall rate, though, which includes properties in lease-up. The stabilized rate sits at about 7.5%. Nonetheless, both are being affected by the growing number of options that renters have, particularly in locales such as Downtown Nashville.

Shifting market dynamics have also begun to play out when it comes to pricing power. Asking rents declined by-1.9% in 2023, the first year of declines in Nashville since 2009 following back-to-back years of outsized gains in 2021 and 2022. Yet, as communities have been delivering, options for renters have increased. Furthermore, with additional units on the way, subdued growth is likely for the coming quarters, and concession offerings are expected to remain elevated.

The rise in interest rates over the past year and a half has impacted investment activity within the capital markets. Four-quarter trailing investment activity is down by 63% year over year and also down 37% relative to pre-pandemic norms. However, given that asset pricing is still elevated versus a few years ago, Nashville's four-quarter trailing sales volume total aligned with pre-pandemic norms at the close of 2023.

Rent and Vacancy

Falling rates are a change of pace for Nashville. After all, asking rents grew by more than 13% in 2021 and then by over 4% in 2022. Yet, as the arrival of more than 11,000 units in 2023 provided a long list of options for renters, particularly in places like Downtown Nashville and Southeast Nashville, properties have been faced with dropping rents to entice renters. That was evidenced by the second half of 2023 when asking rents declined by about 3.6%. That marked the most negative two-quarter stretch of rent declines in the past 15 years in Nashville.

Asking rent declines have not been limited to certain geographies within Nashville, as 11 of the metro's 16 submarkets saw asking rents decline in 2023. However, the rates of decline varied widely, with places such as West Nashville and Downtown Nashville each seeing rent decline by at least 4% last year. Furthermore, just one submarket saw asking rents grow by at least 1%, which was Robertson County.

Rising vacancy and levels of competition for renters have also resulted in an uptick in concession offerings throughout Nashville. By the end of 2023, 30% of all communities surveyed offered some concession. While that offering varied from a waived fee to as high as three months of free rent in places like Downtown Nashville, that was the highest percentage registered in the metro since late 2020, amid the second wave of COVID.

Property managers in Nashville will likely be fighting an uphill battle for several more months. With a glut of units early in lease-up and an additional 9,000 units slated to open their doors in 2024, it may take all of this year to work through the newly delivered units. Thus, asking rents are expected to continue declining at least through the first half of 2024, with minimal gains forecast by the close of the year.

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