$1,162 1Q 2024
-2.3%
92.3% 1Q 2024
-130 BASIS POINTS
4.6% (FEB 2024)
5.6% (FEB 2024)
* Please note that these employment figures have been adjusted for seasonal variations and are based on Moody’s Analytics forecast as of January 1, 2024.
** Please note that these unemployment rates are estimates that have not been adjusted for seasonal variations, and they are derived from Moody’s Analytics forecast as of January 1, 2024.
QUARTERLY DEMAND
QUARTERLY COMPLETIONS
The rapid increase in new units has posed a significant challenge for the Nashville apartment market, despite a 150% increase in demand year-over-year through the first quarter of 2024. Historically, demand has only twice exceeded the 9,000-unit mark in any trailing four-quarter period. Therefore, even though demand has been significantly above historical norms, it has struggled to keep pace with the record number of new openings. However, as construction starts begin to taper off in Nashville, there should be sufficient runway by 2025 for demand to meaningfully absorb the influx of units from the past two years.
Multifamily development in Nashville has reached unprecedented levels. Among the 50 largest markets in the country, Nashville ranks fourth in terms of the percentage of units under construction relative to its existing inventory, with a rate of 12.0%—significantly higher than the national average of 4.7%. In absolute terms, the Nashville metro area currently has approximately 20,000 units under construction, though this number has been decreasing as construction starts diminish. As a result, only about 6,600 units have commenced construction in Nashville over the last year, representing one of the lowest annual start totals since 2012.
Occupancies in Nashville are declining amidst the largest surge in supply the metro has seen in the past two decades. The average occupancy rate has dropped by 130 basis points to 92.3% as of the first quarter of 2024, with expectations for continued declines in the near term. Despite this, there is a silver lining for property owners and operators: Nashville’s population is still on the rise. According to the latest Census Bureau data, since 2024, Nashville has added nearly 81,000 residents, marking a 4% increase. This growth positions Nashville as the eighth fastest-growing Metropolitan Statistical Area (MSA) with a population of at least 2 million in the United States. Coupled with a surge in renter demand that began last year, forecasts suggest that Nashville’s average occupancy rate could reach its peak by the end of 2024.
Effective rents in Nashville have declined on an annualized basis for the fourth consecutive quarter, marking the first such trend since 2009. This downturn coincides with occupancies reaching a 15-year low, significantly diminishing the pricing power of property managers across the area. The decline in rents has been widespread throughout Nashville, affecting 11 of the metro’s 16 submarkets over the past year. The extent of the declines varied notably, with Downtown Nashville experiencing a 3.6% decrease, and Donelson/Hermitage close behind with a 3.5% drop. However, there was a notable exception in Robertson County, where effective rents saw an increase of over 6.0%.
Average Monthly Mortgage Payment
Average Monthly Rent
Over the past two years, rising interest rates have significantly impacted transactional activity within Nashville’s multifamily market. The cost of borrowing capital has effectively doubled during this period, making it more challenging for investors to finalize deals. As a result, transactional activity in the first quarter of 2024 was approximately 34% below the pre-pandemic norms in Nashville. Recently, private buyers have increased their presence in the market, representing about 80% of the transactions over the last four quarters. This is a substantial increase from the beginning of the decade when private buyers accounted for only 45% of transactions, and institutional and REIT buyers dominated about 50% of the market.
* Trailing 4Q average PPU
* Preliminary Data from RCA – Individual transaction $2.5M +
Please note that the income and expense data presented in this section is sourced from third-party providers. Our firm does not provide any warranty or guarantee as to the accuracy or reliability of this information. We recommend that users exercise their own discretion and professional judgment when interpreting and utilizing this data.
| Income Assumptions | Value / Unit | Year Change (%) |
|---|---|---|
| Rental Income / Occupied Unit | $1,561.38 | 6.2% |
| Recoverable Expenses / Occupied Unit | $78.89 | 11.6% |
| Other Income / Occupied Unit | $91.71 | 4.9% |
| Total Income / Occupied Unit | $1,731.98 | 6.4% |
| Operating Income | ||
| Rental Income | $1,453.73 | 5.0% |
| Recoverable Expenses | $73.46 | 10.4% |
| Other Income | $85.39 | 3.7% |
| Total Income | $1,612.58 | 5.2% |
| Operating Expenses | Value / Unit | Year Change (%) |
|---|---|---|
| Payroll | $146.30 | 5.0% |
| Repairs & Maintenance | $50.21 | 11.1% |
| Leasing | $63.63 | 2.4% |
| General | $32.45 | 0.9% |
| Marketing & Advertising | $22.62 | 4.1% |
| Repairs & Maintenance | $109.74 | 10.6% |
| Cleaning | $20.15 | 11.7% |
| Roads & Grounds | $20.25 | 7.9% |
| General | $69.33 | 11.1% |
| Administrative | $42.76 | 8.9% |
| Security | $5.93 | 0.8% |
| General | $36.83 | 10.3% |
| Management Fees | $46.22 | 4.1% |
| Utilities | $94.01 | 2.0% |
| Electric | $20.19 | -1.6% |
| Gas | $0.97 | -19.5% |
| Water/Sewer | $72.86 | 3.2% |
| Real Estate & Other Taxes | $162.64 | -4.5% |
| Insurance | $42.85 | 30.3% |
| Other Operating Expensees | $3.64 | |
| Total Operating Expense | $670.78 | 4.6% |
| Value / Unit | Year Change (%) | |
| Net Operating Income | $941.80 | 5.6% |
|---|
Looking ahead, strong foundational demand drivers, combined with a significant reduction in supply pressures, are poised to strengthen occupancies by early 2025, subsequently accelerating rent growth. This shift is anticipated as the high influx of new residents continues to fuel demand, while the slowdown in new construction starts helps to rebalance the supply demand imbalance. These conditions suggest a more favorable environment for the Nashville multifamily market in the medium term, stronger rental yields as the market adjusts.
