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Market Reporting that Matters

Nashville Apartments’ Outlook Mixed

Supply Lowering Rent Growth

By Louis Rosenthal | Tuesday, April 18, 2017

 

The market for Nashville apartments was one of the strongest in the country just one year ago. But its near-term outlook is questionable, considering the extent of new units in the pipeline, which is depressing urban core rent growth and necessitating larger concession offerings, according to Axiometrics apartment market data.


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Annual effective rent growth in Nashville exceeded the national average from February 2012-February 2017, sometimes to a significant degree, as was the case in April 2016. In March, however, Nashville finally fell below the national average of 2.1% when it recorded 1.7% rent growth, the apartment research shows.

On the other hand, Nashville is still dominant in terms of job growth and occupancy rates compared to the country as a whole.


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But beneath these positive indicators lurks a troublesome reality: The inventory of Nashville apartments is set to grow by 5.8% this year — on top of the 5.3% inventory growth rate posted last year. In concrete terms, Axiometrics’ apartment data has identified more than 10,000 new units set to deliver in 2017, compared to 5,600 in 2016.


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With half of these 2017 new deliveries located in Nashville’s urban core, it’s no surprise that urban core rent growth was in negative territory.


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In fact, if we were to exclude urban core properties, March’s annual effective rent growth in Nashville would be 3.0%, as opposed to the 1.7% growth rate with all properties. Visually, Nashville’s urban core stands out as the only submarket in the metro currently experiencing negative rental growth rates.


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The onslaught of new supply across the Nashville metro area has increased competitive pressures and, as a result, concession offerings. Among all lease-up properties, concession values are now worth about 6.3% of the asking rent. For lease-up properties within the urban core, apartment data shows the concession value is worth about 13.0% of the asking rent—roughly equivalent to six weeks’ free rent.


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Despite a few of these ominous indicators, the Nashville apartment market is, generally speaking, in good shape. The demographic trends are positive, with a larger share of the prime renter age group in Nashville than in the nation as a whole. The local economy is also strong, with robust metro-level economic growth rates and steady job growth within a relatively diversified economy.

Notwithstanding some short-term dissonance, Music City’s supply and demand fundamentals should be in relative harmony by the end of the decade.

 

Louis Rosenthal

Louis Rosenthal

Real Estate Analyst

Louis Rosenthal researches and analyzes current apartment trends in the United States and correlates them with economic indicators. He also studies the urban landscape and other metrics to develop in-depth reports and presentations for clients. Louis recently earned his Master of Science in Public Policy, focusing on housing, landuse patterns, real-estate dynamics and economic development. He combines that knowledge with his four years of practical experience in tax analysis, regression analysis and presentations to develop insightful analysis. An accomplished writer, Louis’ work has appeared on Forbes.com and Axiometrics’ blogs, among others.

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