Getahn Ward

The Tennessean

After years or growth, monthly rents are leveling off at the swanky, new apartments that dot the Nashville skyline.

But rate increases continue at older apartment communities, including those renovated and rental rates raised.

Developers are building mostly, smaller one-bedroom units near downtown.

For the first quarter, Nashville's apartment occupancy rate fell 2.76 percent to 92.69 percent.

The average rent for a one-bedroom apartment in the Nashville area fell 3.1 percent a month during the first half of this year, the third biggest drop among cities nationwide.

Observers who track Nashville's multifamily market see the findings in apartment listing service Abodo's 2017 Mid-Year Rent Trends Report as reflecting a tale of two markets.

After years of growth, monthly rents are leveling off at the swanky, new apartments that dot the Nashville skyline with developers and landlords now offering concessions and other perks to lure renters. But rate increases continue at older apartment communities, including properties getting bought, renovated and monthly rents raised to market rates.

"The new have come online quicker than they've been absorbed, so there's been a little indigestion for everything to get back in balance," said Woody McLaughlin, a member of the statistics committee of the Greater Nashville Apartment Association trade group.

In Nashville, the average one-bedroom rent was $1,373 at mid-year, down an average of 1.3 percent a month in Abodo's tracking. Fort Wayne, Ind., led the list of cities with declines, down an average of 4.9 percent a month with the average rent $562. That was followed by Lincoln, Neb., where rent declined 4 percent with the average $700 a month.

Nationwide, overall apartment rents remained relatively stable through mid-year, Abodo reported. Once again, San Francisco, New York and San Jose posted the highest rents.

More concessions, fees waiver, perks

Madison, Wis.-based Abodo's apartment analysis of rents didn't take concessions into account. But a separate tracking by research firm CoStar Group shows most newly delivered projects in the Nashville area offering two months free rents on 14-month terms and a month free on 13-month terms, waiver of fees and deposits and perks such as gift cards and TVs.

"It’s only the properties that have really slowed down in leasing or are still pre-leasing while under construction that are offering these types of concessions on a 12-month lease," said Elinor Avant, a CoStar market analyst. “Discounted rent is still pretty rare, but is becoming more common as the competition rises. $500 and $1,000 upfront is really common on all lease terms."

Locally, CoStar's data shows that new projects in Midtown and the Music Row area have some of the highest average asking rents across bedroom types in Metro Nashville.

Average monthly rent at the new 350-unit, two-month-old, 45 percent pre-leased and almost 15 percent occupied Residences at Aertson Midtown is $2,685 a month, while the 430-unit, around 65 percent occupied, 13-month-old Element Music Row is at $2,400 a month.

The 275-unit Crescent Music Row, which opened in May with roughly 15 percent of the units occupied, is nearing $2,200 a month.

Rounding out the top five and both north of $2,000 a month are The Morris, a 344-unit mixed-use apartment community rising at 818 19th Ave. S. on Music Row; and downtown's under-construction, 328-unit Olmsted Nashville.

Projects on hold, financing tough

Currently, 16,000 apartment units are under construction in the Nashville area with 10,000 more units in various planning stages, according to the Greater Nashville Apartment Association. Developers are building mostly, smaller one-bedroom units near downtown and others with building sites sitting still and assessing market conditions.

John Tirrill, managing partner of Atlanta-based developer SWH Residential Partners, which plans to hold on to 3.5 acres in Germantown for the next few years, said it's hard for developers to attract capital to build new apartments in Nashville's urban core.

"The suburban markets are holding up well, but there's not a need for additional new apartments in the urban core," said Tirrill, whose firm just kicked off preleasing for its 247-unit River House apartments at Rolling Mill Hill near downtown. "We continue to be very bullish on Nashville over the long term and will continue to invest in Nashville."

Likewise, Indianapolis-based Buckingham Cos. doesn't have immediate plans to start a project on a 0.48-acre site at 701 12th Ave. S. in the Gulch for which the developer has a special exception that allows for a 38-story residential tower. "We understand the limitations imposed on us by the zoning approval, but we're not going to make a decision prematurely," said Scott Travis, senior vice president of development with the developer of Aertson Midtown, referring to a deadline to obtain building permits.

For the first quarter, Nashville's apartment occupancy rate fell 2.76 percent to 92.69 percent, reflecting increased supply including completion of 1,786 new units during that three-month period, according the Greater Nashville Apartment Association's tracking.

Robertson County, Madison and Antioch have lowest average rents

The trade group's data also showed overall first-quarter average rents flat at $1,122 from a year ago. Green Hills-Midtown and Downtown Nashville led the region in average rents with $1,731 and $1,724, respectively. The Parkwood-Union Hill area along the Davidson and Robertson County lines, Robertson County, Madison and Antioch-Priest Lake had the lowest average monthly rents of $883, $916, $926 and $947, respectively.

CoStar's Avant expects the Nashville area multifamily market to reach its peak this year for deliveries of new apartment units with a slowdown to follow afterwards.

"Even with Nashville having some of the strongest job and population growth, there is so much that is set to deliver and vacancies are anticipated to rise throughout 2017," the market analyst said. "After we get past the peak and construction slows down, vacancies should compress and head towards their historical average. Whether or not they reach their historical average is the question. Nashville’s landscape has completely changed."

McLaughlin of the Greater Nashville Apartment Association expects a more challenging environment for apartment owners/developers as inventory continues to grow.

"The rental growth will not be as strong as as it has been in the last three or four years," he added. "The consumer can continue to expect concessions on the high-end product to compete with more renovations of older apartments that can compete price-wise."

Reach Getahn Ward at gward@tennessean.com or 615-726-5968 and on Twitter @getahn.