Nashville Retail Market Update Q1 2018


National Retail Trends

Nationally, we’re experiencing strong consumption, despite sluggish income growth.

After all, it’s much easier to consume products nowadays thanks to Amazon and online retail.

And with wealthier residents flocking to the urban core, convenience is paramount.

People want walkable neighborhoods with shopping, entertainment, and jobs.

So while retail is shifting, thanks to the Amazon effect, it’s not going anywhere anytime soon.


Development Activity Slows

Retail has experienced a massive decline in development compared to last cycle.

But that’s not due to a lack of demand.

Vacancy rates are just over 4.5% nationally, proof that demand is outpacing supply.

Developers seem to be a bit weary with regards to the Nashville retail market.

While traditional shopping centers and malls seem to be struggling, grocery anchored centers stand strong.


Rent Growth Positive

From 2009 to 2012, rent growth was negative for retail.

Not surprising, considering Americans were not in a place to consume beyond their means.

Growth has remained positive since then, at around 2% annually.

While this is not stellar, at least it’s on the rise.

Top growth markets are in the South and West while the Northeast is actually experiencing negative growth.


Retail Store Closures

2017 was a record year for retail store closures.

And this year, we’re on pace to surpass that.

The retail market is certainly shifting and those who don’t adapt to accommodate to new demands will die.

Notable closures include:


The Nashville Economy

Nashville’s economy is powerful - particularly due to the strong growth we’ve experienced this past cycle.

Buying power is an impressive $298 million within 3 miles of the core - a nearly 40% increase since 2007..

The city has one of the lowest vacancy rates in the country at 3.5%!

We currently have 1% of our entire Rentable Building Area under construction (top of the US and more than Orlando).


Job Growth

Since 2001, we’ve added 300,000 jobs to the MSA – from 700,000 to over 1,000,000 in just 17 years.

An increase of 43% and rising.

Although the price of living has significantly increased this cycle, it’s still affordable compared to other large metros.

In fact, we’re still outpacing Raleigh and Philadelphia in terms of household growth.

The city has been averaging about 4% annual jobs growth – due in part to strong millennial attraction.

Metro Nashville is 4th in the country for millennial attraction, only outpaced by DC, Charlotte, and Raleigh.

To put that jobs growth in perspective – that’s twice the national average and higher than Miami.

Nashville’s job growth is expected to slow down but remain positive.


Nashville Continues to Grow

As Nashville’s population creeps to 2 million, the city has reached an historic low of 2.4% unemployment.

24,000 jobs were added last year alone, with business services, logistics, and leisure / hospitality leading the pack.

The MSA is in the top 20 for household growth in the country and is experiencing nearly double the national average.

But home affordability is pushing more renters into the market.

The median home price today is $250k, compared to $200k in 2011.

A 25% increase in only 6 years.


Where the Nashville Retail Market Stands

It’s no secret that Nashville’s retail market is tight.

If you’ve recently been in the market looking for space, chances are good that you’re struggling.

Similar to our housing market, available retail spaces tend to have multiple suitors and bidding wars.

If you don’t have your financials put together and a strong tenant history, it’s tough to compete.

After all - 3.5% vacancy essentially means nothing is available.


Retail Fundamentals

Nashville delivered more retail space from 2006-2008 than we have in the last 10 years.

Vacancy rates peaked in 2010 at 8% and have steadily declined since.

For 4 years, Nashville mirrored national vacancies until 2014 and has remained lower than national rates since then.

2017 saw the most retail construction retail activity this cycle, which hasn’t seemed to carry into 2018.


Nashville Rent Growth

The Nashville retail market is outpacing the country 2 to 1 in terms of rent growth.

Yes, growth has slowed, but it’s still strong comparatively.

Retail has experienced solid growth compared to other property types (office, industrial, multi-family).

All submarkets of Nashville have seen strong gains, with Green Hills, West End, and Cool Springs the strongest.


Retail Development Down

Historically, Nashville runs at a 13.7% inventory growth (long term 5-year average).

For the last 5 years, we’ve experienced only 2.4% inventory growth - over 5x less than typical.

And vacancy rates have certainly plummeted because of that.

The Nashville retail market currently sits at 3.5% vacancy, compared to 4.5% nationally.

Absorption rates are also higher than the national average.

In the last 5 years, we’ve absorbed 10 million square feet of retail.


Construction Activity

While development is down, construction activity is on the rise.

Downtown is experiencing the highest amount of growth with 400,000 square feet (11% of total inventory) coming online.

Other submarkets with high activity include:

Bellevue, 10% of inventory

Rutherford County, 7.1% of inventory

Cool Springs / Franklin, 7% of inventory.

That may seem like a decent amount of product under construction, but it’s less than all of the other Sunbelt Metros and one of the sharpest declines in the country (down from 10% to 2.4%).


Retail Investments

Investment sales activity has been flat.

Nashville retail investments peaked in 2016 at $1 billion traded.

2017 saw a 30% drop in activity!

And I’m not expecting that to significantly pick up anytime soon.

Pricing is strong in the market at $250 / square foot - naturally, downtown is the highest at $800 / square foot.

Rutherford County experienced the highest volume traded with $120 million in 2017.


Nashville Goes International

Canadian investment activity in Nashville picked up last year, as well, which I found interesting.

Foreign investment is certainly coming to Nashville – The Cauble Group is currently working with an Australian investor on commercial investments.

Nashville’s strong growth has brought it to the international investment table – don’t miss out on your opportunity to invest in the Nashville retail market with strong demand and rent growth.


Interested in other types of commercial product? Take a look at our 18Q1 office report, multifamily report, industrial report.

Data courtesy of Costar.