Urban Land Institute Vice President Dean Schwanke illustrated the national recovery in commercial real estate with a tortoise, but he said pieces are in place for Nashville to make gains in 2013.
At ULI's annual Emerging Trends conference at the Frist Center for the Visual Arts, Schwanke said the group's annual survey indicates secondary markets — like Nashville — are primed for positives in the new year.
"We see a lot of investors trying to find a way to find yield," he said. "They are chasing yield into secondary markets."
In ULI's outlook rankings for 2013, Nashville ranked 18th among the 51 largest markets — one of the top second-tier cities. Schwanke said because Nashville's major economic drivers are relatively recession-resistent — health care being a prime example — signs of positivity are emerging.
Nashville is also among the cities eyed by an increasingly important investment sector — foreign investors, especially those from Canada. But Schwanke offered one caveat which may be a sign of concern going forward.
"Nashville seems to have some issues with supply constraint. Things can get built pretty easily and it's easy to get overbuilt [in that environment]," he said.
Among the local panelists, Smith Travel Research's Jan Freitag said hotels had a historic year in the Music City. All of the major industrial indicators in the hospitality industry — supply, demand, vacancy, revenue per room — hit all-time highs in 2012 and Freitag said the signs of strong continued growth may portend a record-setting 2013.
Freitag said the last peak in Nashville in the hotel industry came in 2007 and 2008, which was followed by a 24-month trough. But, in just 19 months, the industry has returned to and exceeded 2007 levels. He said the Music City Center coming on line has brought a lot of attention to the Nashville market. Eventually, he said, demand will start to outstrip supply, resulting in a lower per-room return.
"This occupancy growth is not sustainable," he said, noting the true indicator of the health of the Nashville hospitality market will come on days the MCC is dark.
The MCC's Larry Atema hinted at the results of a study of the SoBro area to be released in January that predicts eight to 12 new hotels in the area — four are in some stage of planning and construction right now — plus another 250,000 to 500,000 square feet of office and 300,000 to 400,000 square feet of new retail. In addition, the study predicts another 850 to 1,650 residential units in the study's area of focus.
Health Care REIT's Ryan Doyle said it will be interesting to see how health care reform will affect the real estate side of the health care industry.
"Insuring more people is a positive for health systems," he said. "The question is whether it increases demand for office space."
Doyle said his gut feeling is that there are not currently enough physicians to fill the increased demand for medical care that will come with an increase in the insured.