What’s Attracting Investors to Nashville?
Nashville’s commercial real estate sales in 2020 took a notable dip from the previous year but still performed better than the three years of the Great Recession combined, data shows. Commercial real estate sales dropped 37 percent in Nashville, a drastic drop considering the market had seen year-over-year growth in the last decade. Despite this dip, Nashville’s growth trajectory for 2021 is on track to exceed expectations. While other markets were “muted” during COVID-19, Nashville’s commercial real estate market only accelerated. Nashville is one of the hottest markets in the U.S. despite the pandemic-led economic shutdown. According to Urban Land Institute’s (ULI) 2021 Emerging Trends in Real Estate report, Nashville is ranked third as a top market for real estate prospects. People are moving from gateway markets to growth markets across the nation, and developers and investors are following suit. Nashville offers a growing and educated job base, walkable urban submarkets, and unlike larger coastal markets, it has a lower cost of living and business costs, creating an attractive lifestyle. Tennessee is one of only seven states that does not impose an income tax and one of two that doesn’t collect tax on earned income. This benefit has increased the demand by many folds, leading to an influx of interest from investors and developers. Further, low inventory across all commercial real estate fascists has caused the price of land to rise.
The Top 5 Reasons To Invest in Nashville, TN
An 18-Hour City
According to the ULI 2021 Emerging Trends in Real Estate report, Nashville is an 18-hour city. Although COVID-19 has temporarily slowed both daytime and nighttime activity, Nashville is still experiencing extensive in-migration of young workers due to lifestyle, culture, and employment opportunities. As a result, the market is recovering relatively quickly from the massive job loss from COVID-19. Many people are moving to Nashville as it is considered more affordable than its 24-hour counterparts, such as Los Angeles, Boston, Chicago, New York, San Francisco, and Washington, D.C. As such, developers and investors are eyeing the Nashville market’s dynamic economy. The market is the 2nd fastest-growing metro economy in the country, experiencing job growth of 26 percent over the last ten years. Additionally, the metros’ GDP equals approximately $138.6 billion, according to the Federal Reserve Bank of St. Louis, a 71 percent increase over the past ten years. From an industrial perspective, Nashville is considered the gateway to the Southeast. With e-commerce not slowing down, Nashville is a substantial market from a logistics point of view, with three interstates connecting the Southeast to the rest of the nation. Amazon has already acquired nine million square feet in the market.
Numerous Population Drivers
Nashville’s population continues to surge as numerous job opportunities become available. According to the Nashville Business Journal, five of the greater Nashville counties expect to see population growth of more than 50 percent by 2045. The primary population driver includes the numerous corporations coming to the area in search of business-friendly regulations. As Nashville’s economy continues to recover, the Bureau of Labor Statistics reports that construction, trade and transportation, financial activities, and professional and business services are some of the sectors showing the fastest signs of improvement. As major companies move to Nashville, a youthful population follows suit, breathing life into many suburban areas. Multifamily investors are bullish on the expansion of apartments in 2021 as the population continues to grow. Currently, the majority of the top 10 largest companies in Nashville are in the medical field, and because of this, investors are making moves to the metro in search of this product type. Healthcare tenants have increased in popularity recently due to their consistent revenue stream and recession-proof business model. The requirement for build-to-suit spaces also makes them a stable tenant for many investors.
Single-Family Home Prices Increasing
The pricing of single-family homes is an important consideration for commercial real estate investors. Home values in Nashville have increased 7.8 percent over the past year, and prices are expected to continue rising at the same pace. According to WalletHub, Nashville is ranked as the 4th best real estate market in the U.S. This ranking is based on key investment criteria, including activity in the real estate market, growth in property values, and the local economy’s strength. As the population continues to grow and home prices continue to increase, a majority of people are deciding to rent instead of buy. Millennials and Gen X enjoy the flexibility of renting, a growing trend that looks to continue. Nashville is one of the top cities people are moving to, helping keep the real estate market robust and the demand for multifamily property in Nashville strong. As the Nashville Business Journal reports, Nashville is one of the top six cities seeing the highest amount of inbound growth as people migrate from more congested urban areas to affordable cities like Nashville.
Large Projects Are Still Being Delivered
Despite COVID-19, commercial real estate projects are still underway in Nashville, including the most talked-about development – the mixed-use building located on 5th and Broadway. After finishing the primary construction, this development opened for retail and dining on March 4th at one of the busiest and best-known intersections in the region. This project has been in the works for nearly four years and takes up an entire 6.2-acre city block in Nashville’s tourism destination across from the stadium. Nashville recently set a single-family price per square foot record in Germantown for $512 per foot and numerous price-per-unit records. The multifamily landscape in Nashville is vibrant, with 300+ projects currently under construction. These deliveries only illustrate the growth that the metro is capable of. There is a robust construction pipeline, with plenty of groups looking to build in the area, specifically in the suburbs. Multifamily amenities were sucked out of the downtown, which caused many to move into the suburbs. Although the permitting stage is taking longer than necessary and entitlements affect price points, there are no signs of slowing down. From a capital markets perspective, there is strength in all product types in the Nashville market.
Design Changes Anticipated For CRE Properties
As remote work continues, the office sector is following retail in the online transition. By taking this into consideration, design adjustments are being made in multifamily to accommodate working from home. There is an increased need for co-working opportunities in multifamily buildings and dedicated space in-unit for a desk. Moving forward, multifamily developers are taking into consideration that space needs to be flexible and accessible for office needs, adding 200-300 square feet per unit. Further, companies are starting to question whether a large amount of office square footage is necessary, thus downsizing. Fortunately for Nashville, most office nodes are easily accessible by car, an attractive attribute in the short term. There is an increased need for multifamily in close proximity to work outside the urban core. Class A luxury apartments had difficultly leasing units during 2020, as Class B workforce housing gained popularity. As the medical workforce in Nashville continues to grow, it is anticipated that more housing will be necessary with lower specs and little amenities to cater to demand in areas near hospitals and other medical office nodes. In 2020, hotel developers quickly pivoted hotel developments to multifamily in the Franklin submarket to accommodate this demand.
With COVID-19 altering day-to-day life, impacting society, the economy, and by extension CRE, Matthews™ is here as your resource. Please contact a Matthews™ agent for more information on the Nashville market.