Out-of-Town Developers Flock to Nashville

Despite a sluggish year for Nashville’s investment market in 2023, activity from out-of-town developers remains fervent, the Nashville Business Journal reported.

There’s been a notable uptick in interest from developers, particularly in the multifamily sector, even from those who have yet to explore Nashville’s market firsthand, said Eric Deems, principal broker at Land Advisors Organization’s Nashville office.

“They’ve been worried they missed Nashville, and that’s what we have to keep telling them. You haven’t missed Nashville,” Deems told the outlet. “Nashville is still wide open for business.”

Many developers underestimate the complexities of Nashville’s market dynamics, often expecting a smoother process than what they encounter, Deems said.

There were 424 commercial real estate closings in Nashville last year, marking a 12-year low, the outlet reported. The drop in sales was primarily due to high land prices and financial hurdles, including high interest rates, tough lending standards and rising construction and labor costs, all of which have contributed to slowdowns in development activity.

Land costs remain a significant barrier for many prospective developers, although some clients have observed a slight reduction in construction budgets, Deems said.

Nonetheless, Nashville offers distinct advantages that help offset its challenges. Prime downtown locations, for instance, are comparatively more affordable than in other major cities.

“I think they were expecting it to be a little bit more of the free-for-all Wild West. That’s been dispelled, but the ability to own a downtown corner for $20, $30, $40 million — my New York guys can’t even fathom this,” Deems said.

Another advantage is the flexibility of downtown Nashville’s zoning code. Unlike rigid zoning seen in cities such as Manhattan, Nashville allows adaptable projects and favorable investment opportunities, providing developers with greater freedom in realizing their visions.

Looking ahead to 2024, while uncertainties persist in the commercial real estate landscape, positive indicators suggest that Nashville is poised for recovery. Cooling inflation rates, a record-high number of construction permits issued in the previous year and sustained growth in the tech sector all point to a resilient market.

—Quinn Donoghue