Apartment Overview
Apartment market softens, but fewer projects in pipeline
Nashville Business Journal
As of year-end 2001, the Nashville apartment market is weakening because of Middle Tennessee's softening economy and competition from single-family homes. Rent levels dropped slightly and the overall occupancy rate decreased significantly since year-end 2000.
Job growth is still positive but slowed substantially during 2001, while the unemployment rate is about the same as last year at 3.2 percent. New construction has slowed and the pipeline is almost empty.
"Looking forward, however, positive job growth and very low new construction levels will provide a foundation of strength for the market. Low interest rates, strong home buying, and weakness in several key industries will hold the market in check," says Brennon Fitzpatrick, an investment broker with Grubb & Ellis/Centennial, a member firm of the Greater Nashville Association of Realtors' Commercial Investment Division.
According to Grubb & Ellis/Centennial's fourth quarter survey, the average rent for Nashville apartments is $703, virtually unchanged since midyear 2001. The average rent in Grubb & Ellis/Centennial's survey dropped from $715 to $703 (or 1.6 percent) during 2001. The occupancy rate was 92.9 percent stable compared to third quarter 2001, but substantially lower than at year end 2000. More than 90 percent of properties are offering concessions ranging from 2 weeks' to 6 weeks' free rent. Nashville's lower occupancy rate and the recent widening of concessions are negative indicators of the market's health.
The supply side of the Nashville market is favorable because new construction under way and in the pipeline is substantially reduced from previous years. During the 1990s cycle, new construction in the Nashville MSA averaged 2,535 units per year.
In 2001 just 1,958 new units were completed; most of these completions were in Nashville's outlying counties. Significant completions for 2001 include 433-unit Grande View in Bellevue, 366-unit Alta Lake in Hermitage, and the 244-unit second phase of Monthaven Park in Hendersonville.
Eight properties totaling 1,388 units are now under way in the Nashville market. There is less new construction under way now than at year-end 2000 when 2,244 units were under way. There were no starts in the fourth quarter.
High profile properties under way include 240-unit Bristol Commons at Woodland Pointe in Donelson, 278-unit Vintages at the Parke in Murfreesboro, and 364-unit Stoneridge Farms in Gallatin.
Fitzpatrick says the best news for Nashville apartment owners is that the new construction pipeline is substantially empty.
"Limited land availability represents a significant short- to medium-term barrier to entry in the Nashville market. There are very few good sites available," he says.
Only two identified projects, totaling just 108 units, are expected to start in 2002. Grubb & Ellis/Centennial expects fewer than 1,500 units will be completed in 2002 well below the average number of deliveries over the past five years.
Seventeen properties sold in 2001 with an aggregate value of $158 million. Prices ranged from $18,000 per unit to $76,000 per unit. Prices for 1970s', 1980s' and 1990s' "vintage" properties averaged $33,000 per unit, $42,000 per unit and $64,000 per unit, respectively. The largest 2001 sales include Bristol Park at Riverchase, which sold for $18 million (or $76,000 per unit); Autumnwood, which sold for $19 million (or $41,500 per unit); and Wyndchase Bellevue, which sold for $16 million (or $68,000 per unit).
"While institutional buyers have not been as active, private buyers including individuals and syndicators have really stepped up to the plate. The combination of low interest rates and strong demand for Nashville properties has supported apartment values in spite of deteriorating fundamentals," Fitzpatrick says.
Source: Grubb & Ellis/Centennial, a member firm of the Greater Nashville Association of Realtors' Commercial Investment Division
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