Rents, occupancies stagnant
Nashville Business Journal - by Staff Report
When it comes to Nashville's apartment market, the more things change the more they stay the same.
Slower new construction activity countered by slow job growth means Nashville's apartment market enters 2000 in much the same way it entered 1999, according to Brennon Fitzpatrick, an investment broker with First Management Services and a member of the Greater Nashville Association of Realtors' Commercial Investment Division.
At the close of fourth quarter 1999, the occupancy rate was at 94 percent. Average rent levels were stagnant, growing just $8 or 1.3 percent from the $635 average reported for 1998.
"I feel like I'm beginning to sound like a broken record, but the fact of the matter is Nashville's apartment market is about the same as last year and the year before that," Fitzpatrick says. "It has been stagnant since 1996 when job growth slowed and new construction in the Nashville area started to boom. The recovery process just takes time."
Kent Burns, vice president of Freeman Webb Co. and also a member of the Greater Nashville Association of Realtors' Commercial Investment Division, says he is optimistic that the new year will bring noticeable market improvements. He speculates the demand for new homes will slow in 2000 as higher interest rates discourage would-be homebuyers.
"As usual, the real wild card is the economy," Burns says. "Assuming we have a mild slowdown in the economy, higher interest rates, and a continued decline in the supply of new apartments, I think we'll see a more `owner friendly' apartment market with less concessions."
At present, Fitzpatrick notes that concessions are still widespread in the market. This factor, in addition to negligible real rent growth and occupancy rates below 95 percent, has translated into a decreasing return on investment for investors and owners.
The sales market was sluggish in 1999 with roughly $63 million of apartments changing hands. This compares with sales in the $100 million range during 1997 and 1998.
"As an investor in the multi-family market, we are seeing fewer buyers," Burns says. "The REITs that dominated the acquisition market from 1994 to 1998 were much less of factor in 1999. And the high-leverage buyer that dominated in 1998 has been less aggressive, too. That leaves pension funds and private investors as the primary focus in apartment acquisitions for 2000."
New construction of apartments slowed considerably in 1999 with fewer than 2,200 new units added to the market. This compares with 4,300 new units completed in 1998.
Currently, about 2,600 units are under construction, Fitzpatrick says. Rutherford County has the most new apartments under way with 846 units under development. The Madison/Rivergate and Bellevue submarkets are also experiencing considerable new construction with 618 and 433 units under way respectively.
Of significance is the absence of construction activity in Hickory Hollow and Franklin, Fitzpatrick says. Both of these submarkets needed time to recover from heavy construction during the past 36 months. Occupancy rates in both areas are now at or above the 95 percent level.
Sources: First Management Services and Freeman Webb Co., members of the Greater Nashville Association of Realtors' Commercial Investment Division.
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