Nashville Goes From Hot to Red-Hot
Is the metro's growth sustainable in the long term? Two ECI Group executives discuss Music City’s strengths and potential challenges down the road.
The Nashville multifamily market has experienced a fast-paced recovery due to the metro’s diverse economy and big-name corporate relocations or expansions. This has drawn the attention of both renters looking to leave overpriced metros, and investors interested in exploring Music City’s potential.
Stephen Stover, vice president of development, and Tim Johnson, vice president of resident experience, both from ECI Group, talked to Multi-Housing News about Nashville’s strong points and how sustainable the metro’s rapid growth is.
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How much has the Nashville multifamily market changed over the past year?
Stover: Over the past year, Nashville has gone from hot to red hot. Depending on what data source you use, rents are up from 20 percent to 35 percent in places or at certain properties. That type of revenue growth draws a lot more investors to the area, seeking exposure to the upswing in revenue while also likely causing a few would-be buyers to wonder if such growth is sustainable.
What are the main factors attracting investors and developers to the area?
Stover: In ECI Group’s view, the main factor attracting developers and investors is the very strong demand for housing. Nashville benefits from organic and large corporate relocation type job growth, as well as people relocating to the area for livability reasons. That being said, Nashville has a very robust pipeline of supply, which could dampen enthusiasm on certain submarkets.
What submarkets are most in demand now and why?
Stover: The submarkets with the most demand include all of the downtown neighborhoods and many of the suburban submarkets south down I-65 (Franklin, Tenn., to Spring Hill, Tenn.), southeast down I-24 (Antioch, Tenn., to Murfreesboro, Tenn.) and east down I-40 to Lebanon, Tenn.
The downtown submarkets benefit from job growth and the ever-improving live-work-play environment. The suburban submarkets offer less in the way of live-work-play, offset by a better cost of living.
What types of multifamily assets are most sought-after by investors?
Stover: We see strong demand for all types—garden, mid-rise and high-rise across the Class A-C spectrum. Different firms target different parts of the market but, at this point, it’s hard to argue that Nashville won’t continue creating white-collar and blue-collar type jobs at an above average rate, which increases demand for A, B and C quality assets.
As life slowly gets back to normal, what new technologies do you think are here to stay?
Johnson: Now that virtual and self-guided tours have become normal in socially distanced leasing activities, we anticipate they will remain commonplace moving forward. While there will still be prospects who prefer to meet face-to-face or in on self-guided tours, it’s important to offer virtual options.
Personalized and frictionless online resident portals and mobile apps are also a must-have for residents to pay rent, submit service requests and view community updates and events. Ultimately, it’s about investing in the resident experience to meet the ever-changing needs of residents and prospects.
Please talk about the most desirable amenities in a post-pandemic world.
Johnson: The changes at the community level since the beginning of the pandemic have been significant enough to cause us to rethink our amenity and property designs moving forward. Residents certainly still want a nice apartment unit at a fair price. But their expectations have expanded beyond the four walls they live in.
Now, they’re just as interested in the lifestyle they’ll have while living in the community. So, beyond dedicated home office and private outdoor spaces, we’re hearing a lot more about reactivating resident-driven events and gathering spaces, on-demand grocery delivery services, contactless package pickup and delivery solutions, valet trash and recycling services and improvements to self-serve offerings like online resident portals and mobile apps.
How have you adapted your property management procedures to maintain resident safety?
Johnson: ECI Group continues to prioritize safety by regularly sanitizing high-volume areas, maintaining adequate ventilation, stocking common areas with sanitizer and antibacterial wipes, and providing self-service tools to remain as safe as possible.
We took the opportunity to build resident satisfaction during the pandemic with frequent communication, protocol transparency and increased engagement. By redefining our standard resident experience and catering to these principles, we believe our communities can differentiate themselves in today’s saturated market.
Are there any weak spots on the horizon for the metro’s multifamily market?
Stover: ECI Group views Nashville as having a very robust pipeline of supply. Longer term, we are watching to see how sustainable the current rent growth figures are and whether that will start to pose housing affordability or cost of living type issues. If it starts getting very expensive to live in the metro, that could dissuade companies and folks from relocating there versus other Sun Belt markets.
Does ECI Group have plans to expand in Nashville? If so, what areas are you considering?
Stover: Yes, we are actively looking to purchase and develop high-rise and mid-rise projects in the more urban submarkets, and surface parked garden projects in the more suburban locations south and east of the metro. In particular, we have been and will continue focusing on submarkets where we think there will be strong e-commerce-driven or general manufacturing type industrial job growth as those trends are just now really taking off.
How do you see the Nashville multifamily landscape evolving in 2022 and beyond?
Stover: We believe that rental apartment sales are going to continue setting new records until there is a correction in rents or short-term interest rates increase, both of which could happen in the next few years.