With Robustness Comes Headaches For Nashville CRE
With population and job growth, the Nashville real estate market faces the challenges of success. Those might be better than the problems of a sluggish market, but they are challenges all the same, such as high construction costs and the prospect — not realized in Nashville yet — of overbuilding.
According to Royal Investments principal Alex Marks, Nashville's explosive real estate growth over the past 10 years has definitely driven up land and construction costs.
"The challenge will be to sustain the necessary occupancy and rates to pay for the increased costs," Marks said.
Overbuilding, in his estimation, is less of a worry here.
"Based on the data that we’re seeing, the demand is currently meeting or exceeding the projections," Marks said. "Continued individual and corporate relocations to Middle Tennessee, along with increased tourism, should help absorb the planned expansions currently in the pipeline."
Fresh Capital partner Nicholas Cesnik agreed with that assessment. "The serious challenge for the market is the rising price of real estate, and with that the rising price of construction, including subcontractor pricing and more," he said.
But for developers who can get their projects to pencil, there is plenty of good news.
"There is no lack of demand whatsoever in Nashville," Cesnik said.
In the famously hot Nashville hospitality market, the most serious challenge is the large supply of product coming into the market.
"Nashville has had tremendous growth in the hospitality industry, and a lot of supply is hitting the market in the next 15 to 18 months, with about 25 hotels under construction representing over 5,000 rooms," Tennessee Hospitality & Tourism Association and Greater Nashville Hospitality Association President and CEO Greg Adkins said.
Driving the growth is the record 14.5 million visitors in 2017. There has also been hotel occupancy growth in 82 of the last 85 months.
"New supply will test the market, but I remain optimistic, due to demand generators, not the least of which is an internationally recognized Music City brand," Adkins said.
For local hotels, the labor market is the No. 1 challenge from an operational standpoint, according to Adkins.
"Most hotels and restaurants have continuous job openings and are experiencing a much higher cost to keep employees," he said. "Meanwhile, employees are challenged to find affordable housing, while transportation and parking costs make it an even tougher labor market.”
Find out more about the perils of success in Nashville at Bisnow's Nashville State of the Market event Feb. 22 at the Renaissance Nashville Hotel. Marks, Cesnik and Adkins will all be speakers.