Nashville is one of the nation’s most popular hotel investment markets, according to industry experts. And it’s a market poised for growth over the next 18 months.
“The residuals of 2022’s explosive results have set the pace for continued growth. Hotel metrics are forecast to continue growing through 2023,” said Colin Sherman, director of data analysis at CoStar Group. “Despite the talk of a looming mild recession, Nashville is poised to absorb these impacts well.”
Although hotel occupancy for Nashville has tapered 6.3 percent in 2022 over 2019, according to data from STR, average daily rate has grown by double digits. Revenue per available room has also seen growth.
“Hotel demand is expected to grow approximately 27 percent from today to mid-2024. This is a considerable increase for the city, but occupancy will struggle due to the increased inventory and is not expected to reach pre-2020 levels until 2026,” Sherman said.
“We don’t expect occupancy to get back to 2019 levels,” said Daniel Lesser, co-founder, president and CEO of LW Hospitality Advisors. “You have to look at ADR and RevPAR. I would take dramatically increasing ADR over occupancy, because you have more dollars for the bottom line.”
Lesser said Nashville’s resiliency isn’t surprising, and it’s further validation for why it’s such a strong market with much new supply coming in. As of mid-January 2023, Nashville had 99 hotels with 12,581 rooms in the construction pipeline, according to STR. The research company projects 13 hotels with 1,396 guestrooms to open this year. Nashville’s current supply stands at 497 hotels with 57,689 guestrooms.
Sherman said the luxury hotel market is a huge opportunity for Nashville. “The recent addition of luxury hotels such as the Conrad and the Four Seasons and planned hotels, such as the Ritz-Carlton and the Edition, is changing the Nashville market. These developments will bring high-end restaurants and amenities to the market, and some hoteliers expect greater pricing power,” he said.
“Further, the luxury hotel class’s explosive growth increased the luxury supply by over 60 percent in recent years despite the global slowdown in 2020,” Sherman added. “The current luxury supply under construction slated for delivery this year and next is positioning Nashville to become a true luxury hotel market.”
Deals Abound
Last year, hotel sales volume in Nashville reached $1 billion, according to Sherman.
Several key deals took place in Nashville during the second quarter of 2022. GD Holdings closed on a forward sale of the new 235-room Four Seasons Nashville, which sold on a pre-construction basis for $165 million or $702,000 per key, according to Lesser. “It is rumored that if this Four Seasons Nashville were to be marketed for sale today, it would trade at a significantly higher price per key than the recently completed W Hotel Nashville, which sold for $950,000 per key at its opening based upon a forward acquisition commitment,” Lesser wrote in his “Major Hotel Investment Sales in Q4” report.
The city is seeing activity from top investors. To name a few: RLJ Lodging Trust bought the 124-room 21c Museum Hotel in July 2022 for about $59 million. Pyramid Hotel Group bought the 255-room Cambria Hotel Nashville Downtown for $109.5 million. Northwood Investors purchased the 234-room Conrad Nashville for $170.5 million.
“The bottom line is that Nashville is a desirable market with a fair number of sales and new development by smart investors,” Lesser said. “I don’t have too many negative things to point to; it’s one of the best hotel markets.”
Corporate Travel
No snapshot of Nashville would be complete without highlighting the market’s corporate travel power.
“The cost of living is relatively low compared to other markets,” Sherman said. “The ongoing expansion of the Nashville airport could help attract more international flights. In addition, the [Convention & Visitors Corp] and local hoteliers are hoping to host corporate conventions.”
Corporations driving new opportunities for hotel developers in Nashville include economic investments along the East Bank by Oracle and the plans for Nissan Stadium. However, it’s important to note how the evolving office model, such as remote and hybrid work, is affecting travel patterns. For instance, in the summer of 2022, Amazon put construction on hold for a second tower in Nashville as it works to find balance between in-office and remote work for its employees.
“That’s a perfect example of how the implications of recovering corporate travel are affecting the real estate market at the moment and how corporations are looking at a new hybrid workforce, particularly for office,” Sherman said. “We’re not seeing midweek corporate travel, but we believe it will come in 2023.”