This came through my email today regarding Nashville. While Jax is seeing more activity compared to peers Memphis, Louisville, Richmond, Birmingham, etc, it's still falling far short of its other peers (or former peers) Charlotte, Nashville, Austin, etc. I wouldn't say development patterns in Jacksonville are changing yet at all. Consider that we added more infill during '06-'10 than we are adding now. When all is said and done, we will have seen 1534 Oak, 220 Riverside and
possibly neighboring limited service hotel,
possibly multifamily on Pope & Land parcel, and
possibly an adjacent retail center as the only significant urban "infill" between '11-'15 (King St/Riverside adaptive re-use notwithstanding).
Diverse and Growing Economy
The Nashville region's economy is diverse and thriving. Low unemployment, consistent job growth, substantial outside investment, and a well-trained labor force combine to make Nashville an attractive city for business. Nashville enjoys an unemployment rate that is historically below the national average, ending the year at 6.95 percent (compared to 8.3 percent for the nation).
Nashville's diverse economic mix is led by the manufacturing and healthcare industries, followed by publishing and printing, finance and insurance, music, transportation, and tourism. According to the Nashville Chamber of Commerce, the city has added operations of eight corporate headquarters in the last two years, which created approximately 4,000 new jobs, including Nissan's relocation of its U.S. corporate headquarters to Nashville. According to a recent University of Tennessee study, the Nissan move alone has produced an annual economic impact of more than $500 million.
Pipeline
The effects of a robust recovery are not only increases in rents and occupancies but also construction. The trough of new completions came in 2007 and 2008 when 674 and 558 units were completed, respectively. Since the Nashville recession was not very deep and the recovery has been very swift, we are making up for lost ground with new construction.
In 2011, Nashville delivered 1,271 units, and in 2012 we delivered nearly 2,000 units. We expect to deliver more than 3,000 units in 2013. The majority of recent new construction has been in West End/Downtown where rents for new product begin around $1.70 per square foot and go up to $2.25 per square foot and higher and in Franklin, where there has been little new supply over the last decade and new suburban product can achieve rents in the $1.30 per square foot range.
The West End/Downtown market is currently seeing the greatest influx of new product. Either in lease-up or under construction there are nearly 2,000 units. The properties are currently coming on line, such as Bristol Development and Associated Estates' Vista Germantown and TriBridge and Carlyle's 11 North, cannot keep up with absorption demands. Both properties are leasing in excess of 40 units per month and rents are rising in the process. Other developers that are throwing their hats into the urban ring are Market Street with Pine Street Lofts, Southern Land and JP Morgan with Elliston 23, and North American Properties with Park 25.
Franklin is the other submarket that is witnessing the greatest amount of growth, after more than a decade of no apartment construction. The area has seen a tremendous amount of job growth with corporate relocations, like Nissan. When Southern Land completed the 258-unit Dwell in 2009, it was the first new property in the submarket since 1998. There are approximately 1,500 units currently under construction or in lease-up in Franklin, including Crescent/MAA's Venue at Cool Springs; SWH Residential Partners' Grove Franklin; Bristol Development and Bell Partners' Bell Historic Franklin; Southern Land's second phase of Dwell; and Bristol Development and Northwestern Mutual's Tapestry in Brentwood.
We expect to see continued construction in West End/Downtown and Franklin this year, but we will also see construction in other suburban markets. There are currently projects in the pipeline in Bellevue, Hendersonville, Murfreesboro, and Mt. Juliet.
Looking Forward
Nashville's diverse economy and its high barriers to entry (both politically and topographically) have allowed robust recovery where absorption is driving vacancies down. The decline in vacancies from their peak has been a huge boost for effective rents, which have risen in each of the last seven quarters and are currently at their all-time peak, poised to keep growing.
Seasonally adjusted absorption has been positive in each of the last nine quarters, but the pace of this absorption has slowed in each of the last five quarters, primarily due to the lack of new supply. The product that is coming on line is benefitting from market-high rents and absorption. Although vacancies will trough below five percent in 2013, the solid supply pipeline for the coming years will cause vacancies to rise again to the mid-five percent range by 2015.
This just came through my email:
The exceptional year that Charlotte experienced in 2012 was not fully anticipated at year’s end 2011. However, MPF Research's second quarter report (July 2012) showed Charlotte's year-over-year rent growth at 6.8 percent, placing it third in the top 10 markets for rent growth nationally (of the top 50 national markets). This trend was reinforced by MPF’s third quarter publication which reported year-over-year rent growth of 6.3 percent. This marked the fourth straight quarter of year-over-year rent growth in excess of 6 percent. In addition, the report showed overall market occupancy levels of 95.9 percent, the second highest achieved in 14 years. Such favorable news serves as confirmation that the Charlotte economy has remained strong through the financial crisis, as banking sector jobs have remained largely intact and the overall economy of Charlotte is more diverse than many once thought.
As a result of the favorable market dynamics, Charlotte’s visibility amidst the national investment landscape has increased, causing investors, developers and lenders alike to take note. Charlotte has quickly become a strong alternative to the Raleigh/Durham market, which had been the most desirable market for multifamily investment in North Carolina in 2011 — and one of the leading markets in the nation.
According to Real Capital Analytics, Charlotte’s transaction volume was just shy of $900 million in 2012. Capital sources continue to flock to the highest grade assets, particularly in infill locations. There is steady sale activity in all tranches of the market, including some lingering foreclosure sales in the C and D asset space (where the foreclosure process serves to right-size deals that were overleveraged at the peak of the market). Historically low interest rates are fueling the multifamily investment sales market, with rates remaining at or below four percent for long-term, fixed-rate financing. This low interest rate environment has resulted in historically low cap rates, ranging from just below five percent for high-quality assets, to just below eight percent for assets of lower quality.
Predictably, the strong market fundamentals have, and continue to attract significant development activity. Real Data reported in September 2012 that 3,200 new units had been absorbed in the preceding 12 months, while an additional 4,000 units are currently under construction and another 10,000 units are in various stages of planning. Development financing has become more readily available over the last 12 months and providers of both debt and equity are more tolerant of higher-risk investments (thereby enabling development).
Current development activity is segregated to a few distinct geographic clusters. The majority of new development projects are located in infill locations, predominately close to Uptown. Such areas include South End, NoDa (North Davidson), and Elizabeth. In addition, the affluent suburban submarkets of Southpark and Northlake have several projects currently under construction.
Of these active submarkets, the South End submarket has been most active. Development in South End has been driven by its proximity to Uptown Charlotte; as well as the award-winning light-rail public transportation infrastructure, which has sparked an abundance of retail, restaurant, and entertainment venues in the immediate vicinity. The result is a highly desirable urban-lifestyle that appeals to the Gen-Y renter pool (the population that is driving current demand for apartments). JLB Partners, Colonial Properties Trust, Proffitt Dixon Partners, and Mid-America are currently building more than 850 units at various points along the rail line. Long term, South End is well on its way to becoming one of Charlotte’s most dynamic areas; however in the short term, oversupply poses a legitimate threat.
Despite documented high barriers to entry, the Southpark submarket will deliver two new rental communities beginning in the summer of 2013, including a $52 million, 321-unit high-profile project by Crescent Resources called Circle at Southpark. The Northlake submarket has also been a hotbed for development. Charlotte-based Charter Properties recently completed a 264-unit community called Longview. Ashton Reserve at Northlake, a 330-unit property developed by Tynes Development, and Madison Square at Northlake, a 285-unit property developed by Spectrum Properties, are both nearing completion. Wood Partners just began work on the 246-unit Perimeter Lofts that will begin leasing in the summer of 2013.
The Charlotte apartment market will remain strong in 2013 and should perform in the top tier of apartment markets in the Southeast. We expect investment activity to remain brisk, driven by the continued low interest rate environment and strong appetite for hard assets (real estate). Due to the city’s strong leadership, pro-business attitude, and the high quality of life available, Charlotte’s population growth should continue to build upon the growth seen during the previous decade (2000 to 2010). The Charlotte/Douglas International Airport remains a key economic driver for the city while ongoing investment and expansion of the airport will continue to attract business. Charlotte remains one of the most vibrant cities in the Sunbelt by maintaining a low cost of living, quality transportation options and a diverse economic base.
