Tapering Multifamily Supply Sets Stage for Improving Fundamentals in Nashville

Operating fundamentals in Nashville are showing early signs of stabilization after a period of softness. The market endured an unprecedented supply influx; about 11,800 new apartments delivered in both 2023 and 2024, nearly double the 10-year average. Job gains, homeownership affordability, and in-migration have fueled absorption, allowing vacancy to inch down to 8.0%. Leasing velocity picked up over the summer, especially in desirable submarkets such as Southeast Nashville and Donelson/Hermitage, where units were absorbed faster than they were delivered. Rents may have reached an inflection point. After roughly two years of stagnant or declining rents, asking rents posted a modest uptick in each of the past two quarters. Lease-ups are still pressured by concessions, but average asking rent growth turned positive this year. Operating conditions are gradually improving as construction slows.

Multifamily investment activity in Nashville remains modest. Transaction velocity has slowed from the active pace of 2021 and 2022 and the 2025 year-to-date deal flow is roughly 30% lower than the same period in 2024. Investors continue to favor newer assets, with approximately 55% of properties sold year-to-date built in 2020 or later. The remaining transactions were primarily value-add deals involving 1980s or older vintage properties. The median sale price is approximately $203,100 per unit, down about 7% from 2024. Cap rates have stabilized with market averages hovering in the mid-5% range. Some recent Class A deals have recorded minor cap rate compression, indicating investor demand for well located, stabilized assets. Overall, the investment market is in a holding pattern, but sentiment is improving alongside operating fundamentals. Many investors are positioning for more acquisition opportunities once interest rates or financing conditions become more favorable.

Looking ahead

Several converging forces support a more optimistic outlook heading into 2026. Demand drivers remain in place as the region’s ability to attract new residents and employers persist. At the same time, the supply pipeline is finally easing. With developers significantly reducing new project permitting, 2025 is expected to represent the final year of a construction wave that was brought on by rapid demand growth. Annual delivery volumes should trend downward in 2026 and 2027, easing the pressure on vacancy. The current forecast calls for vacancy to retreat to 7.8% by the end of 2025. Additionally, the mix of new supply will shift with fewer luxury high-rises downtown, and more focus on suburban mid-range projects, which could help align new product with where demand is strongest.

The investment outlook for Nashville multifamily partially hinges on the trajectory of interest rates and capital markets. Market participants anticipate that the Federal Reserve will continue easing rates from late 2025 into 2026. If borrowing costs come down, it could release a wave of pent-up dry powder. Buyers who have been waiting on the sidelines may re-enter, and owners could be more willing to sell once financing is cheaper for prospective buyers. In the interim, Nashville should continue to see modest but steady deal flow, focused on high-quality assets in desirable submarkets. Cap rates could experience additional compression in anticipation of additional rate cuts.

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