Nashville Leading as Office Deals Beat U.S. Average: Real Estate

Annie Ierardi works from home in a Nashville, Tennessee, building thats adding apartments as waves of young workers flock to a city flush with jobs, music and ambition. Amid noise and disruption, she cant imagine leaving.

I love it here, Ierardi, 25, said in a telephone interview, talking over the racket of construction on the floor above. There are so many different neighborhoods so close to each other, the people are friendly and you can go to a show every night. I say yes to everything.

Commercial real estate investors are also saying yes to Nashville, drawn by rising rents in the state capital and longtime hub of the country-music industry. Office and apartment sales in the area soared to records last year, combining for $1.7 billion in transactions and outperforming the U.S. average, according to Real Capital Analytics Inc.

Nashville today is young and vibrant, said Jay Turner, managing director of MarketStreet Enterprises LLC, master developer of the Gulch, a 30-acre (12-hectare) former rail yard thats now a development of loft-style apartments, shops and restaurants just outside of downtown. We predicted the millennial generation wanted to live in an urban setting, and went way out on the risk curve to make that bet.

Last year, Nashville office deals rose 50 percent and apartments gained 35 percent, compared with increases across the U.S. of 22 percent and 14 percent, respectively, said Dan Fasulo, managing director of New York-based Real Capital Analytics. Any time you outpace the national, its significant, he said. Smart money is picking off the best assets in these mid-tier cities.

Nashville, birthplace of the Grand Ole Opry radio broadcasts almost 89 years ago, is booming under the radar with an expanding knowledge-based economy, said Jed Reagan, an analyst at research firm Green Street Advisors Inc. A cluster of health-care companies and spinoffs, related service firms and medical research at Vanderbilt University sit at the center of growth and form the marquee industry in town, he said.

Office vacancies in the city plunged to 10.4 percent in the fourth quarter from 12.3 percent a year earlier, among the 10 biggest declines for U.S. markets, according to CBRE Group Inc. Rents rose 1.7 percent to $20.84 a square foot and are poised for annual gains of 3.3 percent through next year amid a supply shortage, said Arthur Jones, a Boston-based economist with the brokerage.

Acquisitions last year were made by office buyers Shidler Group of Honolulu, Houston-based Lionstone Group and Toronto-based Sun Life Financial; apartment investors Berkshire Property Advisors of Boston and Irvine, California-based Steadfast Cos.; and retail buyers Simon Property Group Inc. (SPG) of Indianapolis and Munich-based GLL Real Estate Partners, Real Capital said.

Nashvilles in-migration of young people and pro-business climate bode well for above-average office-demand growth, Green Street said in a Dec. 4 note on Highwoods Properties Inc. (HIW), whose buying spree boosted its Nashville buildings to a value of $229 a square foot, pricier than any other market among the landlords holdings, including Atlanta at $180 a square foot.

Nashville was among the top three fastest-growing U.S. cities for most of 2013, Labor Department data show. Health cares preeminence includes 220,000 jobs, a $53,000 industry wage that exceeds the $39,000 area average and decades of wealth creation and thought leadership, Janet Miller, chief development officer for the Nashville Area Chamber of Commerce, said in an interview at her downtown office.

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Nashville Leading as Office Deals Beat U.S. Average: Real Estate