While Music City's commercial real estate scene was booming in 2022, this song has slumped in 2023.
Nashville closed 424 commercial sales last year, the lowest volume since 2011, the Nashville Business Journal reported, citing Metro Research.
For the past decade, real estate investors have flocked to Music City, setting records with approximately $6.5 billion in transaction value in 2022. Last year, that number fell by more than half, with commercial sales of $2.8 billion.
“When you have a very long bull market, like we've had, where prices keep going up, rents keep going up, and then all of a sudden, interest rates go up pretty quickly, it takes two years to get the same deal. “If you were to do the same job today as before, you wouldn't pay the same price,” Charles Hawkins Company broker Stephen Prather told the publication.
He said the past 10 years have been special for Nashville, given the city's rapid population growth and influx of investment activity. Therefore, replicating the city's recent success may be difficult.
Last year's decline in sales also reflects wider challenges facing commercial real estate, including rising interest rates, a struggling office sector and cautious lenders making it difficult for prospective buyers to obtain adequate financing.
“The worst time is when you're trying to understand what's going on,” Prather said. “Interest rates have been going up for a long time. I think we're at a point now where it feels like interest rates are going to go down everywhere.”
Prather expects a rebound this year as the market's future becomes clearer, citing slightly lower interest rates. He also noticed an increase in purchasing activity in 2024 as developers and investors “feel better about the environment,” he said.
—Quinn Donahue
