United States -  Nashville

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Nashville benefits from a vibrant economy driven by the rapidly expanding tourism industry and strong healthcare sector. Market demand levels have improved steadily and significantly over the last decade, attributed to a variety of factors, including the 2012 debut of the television show "Nashville," which boosted leisure demand by increasing the city's profile, and the May 2013 opening of Downtown Nashville's new, $623-million Music City Center, which greatly increased convention demand. In addition to the opening of several other demand generators, such as the Johnny Cash Museum and Ascend Amphitheater, corporate expansions and relocations have contributed to recent growth, allowing the market to absorb supply additions without a negative impact. Favorable supply-and-demand dynamics have allowed hoteliers to raise rates aggressively since 2011, but the pace has slowed in recent years, as the entrance of new, high-quality supply has triggered some rate discounting among inferior products or properties in the far reaches of the MSA.

Leisure demand is generated by a variety of attractions and special events, as well as Nashville's growing international recognition as the "Music City." In addition to annual concerts and music festivals, such as CMA Music Festival and Bonnaroo, and year-round attractions, such as the Grand Ole Opry and the Country Music Hall of Fame, Nashville is populated with hundreds of bars, restaurants, and small music venues that feature live music on a nightly basis, earning it the status as a top bachelorette party destination. Moreover, Nashville hosts a multitude of annual sporting events, such as the Music City Bowl, Rock 'n' Roll Nashville Marathon, and the SEC Men's Basketball Tournament, and hosted the 2019 NFL Draft in April for the first time. Nashville also landed MLS's 24th franchise, the Nashville Football Club, which will start its inaugural season upon completion of the $275-million stadium at The Fairgrounds in 2020. Within the meeting/group segment, the Music City Center and Gaylord Opryland Resort & Convention Center drive over a million room nights to the area annually. However, the Downtown submarket has been somewhat disadvantaged by a limited number of hotel rooms within walking distance of the Music City Center, coupled with the relatively high ADR levels of the submarket; as such, the addition of several large full-service hotels should further bolster meeting/group demand growth. Commercial demand is generated by a wide variety of corporate entities, most notably the headquarters for HCA, Nissan North America, Bridgestone Americas, Dollar General, Mars Petcare, and Caterpillar Financial. Furthermore, recent announcements from Amazon, EY, Smile Direct Club, AllianceBernstein, and Philips to add 9,300 combined downtown jobs, as well as the addition of a U.S. Federal Courthouse, should boost commercial/government demand.

Over 2,200 hotel rooms have opened in Downtown and Downtown-adjacent neighborhoods since January 2018, while approximately 3,700 more rooms are under construction in those areas. In the greater MSA, approximately 125 hotels are in various stages of development, representing a nation-leading increase in guestroom inventory of roughly 35%. Nearly 10,000 rooms are expected to open in this market by early 2021, accounting for nearly two-thirds of its new supply pipeline. While new supply is anticipated to weigh on operating performance in the near term, this market has continued to remain resilient in recent years, posting less than a 2% decline from its 2016 occupancy peak through year-end 2018, amid a supply increase of nearly 8% or 3,000 rooms. While strong overall demand growth is expected to continue, as outlined above, the outlook would best be described as positive yet cautious because of the blistering pace of supply growth on the horizon.

Local transaction activity exploded in 2018 and in early 2019 following Amazon's announcement of opening its Operations Center of Excellence within the $1-billion Nashville Yards mixed-use development in Downtown Nashville, creating 5,000 high-income jobs. This announcement, along with the relocation of AllianceBernstein's headquarters from Manhattan to the $430-million Fifth + Broadway mixed-use project, has sparked renewed investor confidence in Nashville, amid a nation-leading increase in hotel inventory. Recent sales are headlined by the record-setting $125-million sale of the Hilton Garden Inn Nashville Downtown Convention Center in January 2019 at $584,112 per room, representing a 32% increase from its previous sale just 31 months prior at $85 million ($397,196 per room). While investor interest continues to be strong, some market participants are waiting to see how the market absorbs the significant amount of new supply in its pipeline. Nashville is viewed as one of the nation's top tourist destinations and fastest growing cities, ensuring that hotel investors will continue to pursue assets in this market for their portfolio. Nevertheless, with anticipated RevPAR declines through the near term, Nashville hotel values are forecast to decline modestly over the next three years.

* Although the HVI cannot tell you what a particular hotel is worth, it does provide excellent “big picture” data, indicating which market areas are experiencing positive trends, and thus may present good investment opportunities. The HVI for the U.S. is a measure of the strength of the lodging industry as a whole and, specifically, the hospitality investment market. The HVI for the various identified markets can provide a basis to evaluate and compare different geographic regions. For more insight on the limitations and applicability of the HVI, please read the message on the HVI home page by clicking on the graphic at the top of this page.

The widespread impact of the coronavirus (COVID-19) has had an unprecedented impact on hotels and hotel values worldwide. Consequently, the latest HVI analysis may no longer reflect the most current measure of lodging industry strength or the hospitality investment market.

In each of our offices across the globe, we are working tirelessly to analyze the impact of recent events and provide timely insights to help you navigate these uncharted waters. Because it is unclear how long the pandemic will last or how long related restrictions will be in place, we are updating our analyses on a weekly basis using the most current data.

Additionally, examination of value trends in prior cycles can provide useful information. Historical patterns, together with an understanding of the market’s current expectations for the eventual recovery of the industry and its performance, can provide insights on the likely trajectory of decline and recovery for hotel values.

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