Apartment Market
Rental rates increase during third quarter
Nashville Business Journal - by Staff Report
The effects of a decline in new apartment construction in 1999 are finally showing up in Nashville's rental market.
Street rents have increased 2.4 percent since the beginning of the year, raising the average rental rate from $665 to $680, according to a third quarter apartment market survey conducted by First Management Services, a member firm of the Greater Nashville Association of Realtors' Commercial Investment Division.
"We knew it was just a matter of time before the market improved once the high volume of new construction tapered off," says Brennon Fitzpatrick, an investment broker with First Management. "A 2.4 percent increase isn't that big of a deal, but it does show the market is strengthening."
An average of 3,700 new apartments per year were added to the Nashville-area rental market from 1996-1998 -- a pace that caused the city's occupancy rate to dip and rents to stagnate.
In comparison, less than 1,200 new units have been completed through the first three quarters of 1999.
"The year isn't over yet, but the level of activity has dropped dramatically," Fitzpatrick says. "Only a fraction of the 2,400 units under construction today will be completed by year's end, so we should see a significant overall drop in new apartments construction between 1999 and the boom years of late."
As has often been the case during this cycle, Rutherford County is experiencing the most new construction with 950 units under way in seven projects. The largest of these properties are Mid-America's
Paddock Club with 240 units and Davis Development's Carrington Place with 184 units. Bellevue has the second largest number of units under construction as Mid-America develops the 433-unit Grandview Apartments. The Briley Parkway, Donelson/Hermitage, Hendersonville/Gallatin, Madison/Rivergate and West End submarkets are also experiencing new apartment construction.
While rental rates increased slightly from the beginning of the year, occupancy rates, another primary indicator of a market's health, remained unchanged at 95 percent. Fitzpatrick says this figure should also rise in the coming months, assuming new construction levels continue at a slower pace.
While the sales market has been slow this year, a significant portfolio sale that closed in early October provides evidence that property values are steady to strengthening. Freeman Webb Co. purchased a three-property portfolio for $37 million from Berkshire Realty. Two of the three properties, British Woods and Highland Ridge, were located in the Nashville area.
Source: First Management Services, member firm of the Greater Nashville Association of Realtors' Commercial Investment Division.
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