Apartment Market
Despite high construction levels, apartment market strong
Nashville Business Journal
Despite the large number of new units being constructed and flat rent levels, the Nashville apartment market finished the second quarter of 1998 on "remarkably" strong footing, according to Brennon Fitzpatrick, an investment broker with Greater Nashville Association of Realtors Commercial Investment Division member First Management Services.
"Both the rental and sales markets have remained firmer than expected," Fitzpatrick says. "And while we're still waiting on some information, occupancy levels appear to have increased slightly from year end 1997."
At the end of first quarter 1998, the last period for which complete information is available, the Middle Tennessee Apartment Association reported Nashville's overall occupancy rate at 93.9 percent, up 1.1 percent from fourth quarter 1997. About half of this increase can be attributed to seasonal influences, Fitzpatrick says.
The other half represents what he considers a "surprisingly strong" absorption in the market coupled with increased concessions.
Fitzpatrick says rent levels continue to be flat, hovering around the $623 average reported at year end 1996. The average rent figure was $616 for first quarter 1998 compared to $632 at the end of last year.
"Rent growth among existing communities slowed dramatically in 1997 when new construction levels began to outstrip demand for apartments," Fitzpatrick says. "As occupancy levels dropped below 95 percent, communities could no longer raise rents."
New apartment construction continues to be a hotbed of activity in the Nashville area, according to Fitzpatrick. However, the Nashville MSA has seen a slowdown in terms of new starts. More than 2,600 units have been completed since January 1, 1998. Another 3,463 units are currently under construction.
"This slowdown in new starts is very good news," Fitzpatrick says. "If developers stop building for a while, we should see an increase in occupancy rates and a possibly an increase in rent levels."
Among the 17 new construction projects underway, eight will have more than 200 units. They include Trammell Crow's Wyndchase at Bellevue, 234 units; South Atlantic's second phase of the Lexington (Bellevue), 358 units; Mid-America Apartment Communities' Paddock Club (Murfreesboro), 240 units; and Merry Land and Investment's third phase of Cherry Creek (Hermitage), 220 units.
Fitzpatrick described the sales market as "moderately" active during the second quarter compared to the first quarter when only one transaction occurred. Through the end of second quarter 1998, $25,589,000 worth of apartments have changed hands in seven transactions. The average price for new construction properties was $38,793, while the average for older properties was $21,588.
Looking ahead, Fitzpatrick says he expects rent levels to remain flat and occupancy levels to drop as more new units are completed.
Source: Greater Nashville Association of Realtors Commercial Investment Division member First Management Services.
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