Sub-Market Analysis - Nashville TN

As part of our ongoing series of sub-market analysis, today we will discuss Nashville, TN. PWC and the Urban Land Institute just published their 2025 ranking for best commercial real estate markets, and Nashville was included in the top five. We have one property in Nashville and continue to look for other investment opportunities.

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What we look for in a sub-market:

Nashville, TN Statistics:

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Nashville has a population of 683K and is one of the fastest growing areas in the country (+1.37%). Long term, NCH Stats projects the greater Nashville MSA growing from 1.3M to 1.4M by 2030. U-Haul lists Nashville as one of the top destinations in the US for movers. The area has a very young and educated population with 75% below the age of 65 and 50% college educated. The area has a diversified employment base, with the largest employer being healthcare at 14%, followed by retail at 10%. The Chamber of Commerce estimates that Nashville has added 25K new jobs so far in 2024. Oracle is an example of a company moving to Nashville. The company is building a $1.5B campus as its new headquarters and plans on having 8,500 workers. The area is also enjoying a surge in industrial jobs from companies like Pepsi, Smyrna and Shoals. Companies are thriving in the area due to no state income tax, local tax incentives, an educated workforce, and Tennessee is a good hub to access other US markets.

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Housing affordability is an issue in Nashville. The median house is $460K, and even at that price, they are selling fast. To afford the median house, you would need to earn over $150K per year. The median household income is only $71K, so renting even at an average rent of $1,624 is the only choice for many. To afford the average rent, household income needs to be $65K. This affordability gap between owning and renting will continue to drive demand for apartment rentals.

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Nashville's alluring business climate and population growth have attracted capital and new apartment construction. On average, the city is currently building 12% of existing housing stock versus a national average of only 5%. In 2024, MMG is forecasting 7.7K apartment units will be absorbed while 9.5K are delivered. As Marcus & Millichap noted in the graphs below, excess supply is pressuring occupancy and average rents.

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There is a stark difference in the supply/demand balance between downtown and the suburbs. MMG just released their Q4 2024 report on Nashville and detailed the apartment construction by neighborhood below. You can see that downtown is being flooded with new apartments (+34.8%) while three areas have no construction, and areas like Hermitage, where our property is located, have modest construction coming to market. The point is you can't use a broad brush when deciding where to invest in Nashville; there are micro-economic factors to consider.

Unfortunately, Nashville has a high level of crime. Fortunately, it is fairly concentrated in certain areas (darker blue). The city ranks nationally a 3, with 100 being the safest. 50 out of 1000 residents are victim of a violent or property crime per year. This makes the old real estate adage, "location, location, location", especially critical when evaluating a deal in the city.

In summary, we continue to like Nashville, but you have to be careful where you invest, and monitor construction, crime and job creation. We believe the wind will be at your back if you are well located in Nashville over the next decade. Construction will revert to the mean as building costs have increased, and there is a dearth of labor for new projects. Rents and occupancy levels in the suburbs have probably bottomed out, and we expect to see growth to return in 2025 and beyond.

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