Nashville, Tennessee, hung on to its title of best overall prospect for real estate investors heading into next year — but now has Dallas and Atlanta nipping at its heels as fear of a recession looms.

Nashville is now the first metropolitan area since San Francisco in 2014 to repeat the top ranking in the annual “Emerging Trends in Real Estate” report that consulting firm PwC produces for nonprofit real estate research and policy organization Urban Land Institute.
 
ULI’s report for 2023 is based on surveys and direct interviews with more than 2,000 real estate professionals about the markets they consider the best overall for investment in the coming year. A third of those in the survey are private property owners or real estate developers.

With the worst days of the pandemic appearing to be behind the country, one of the report’s themes centers on a return to normalcy. “U.S. commercial property markets actually embarked on a remarkable run, with some of the strongest returns, rent growth, and price appreciation rates ever recorded,” the report says, despite fears early in the pandemic that commercial real estate would be devastated.

Much of the run was fueled by industrial and multifamily gains. The hotel industry felt the worst of the downturn but has since rebounded. Office properties are still grappling with a cut in use of space because of the accelerated trend toward remote and hybrid work models.

Now, the gains over the past two years are beginning to fall back to normal with prices declining and transaction volumes dropping.

The report did, however, highlight economic concerns. Interest rates and cost of capital topped the list of economic issues concerning those surveyed for 2023, followed by the availability of labor, job and income growth as well as inflation. Housing costs and availability was the biggest social concern. Costs for construction labor topped the list of real estate development issues.

Last year, Nashville jumped over the Raleigh-Durham area, which had taken the top spot the previous year with life science being top of mind early in the pandemic. The region surrounding North Carolina's capital dropped to No. 6 in ULI's report this year.

The Dallas-Fort Worth area reached No. 2, jumping five spots. Atlanta did the same to reach third place, supplanting Phoenix. Phoenix dropped to No. 9. Austin, Texas, which had the top spot in 2020, stayed at No. 4. 

Dallas and Atlanta were mentioned in survey comments on markets where the number of office-using jobs has increased to pre-pandemic levels. Both also have growing markets for biotech innovation centers.

Meanwhile, ULI's report also ranks markets for their homebuilding prospects, with Dallas coming in at No. 4 and Atlanta at No. 9, both far ahead of Nashville's No. 22.

The two cities are among ULI’s “super Sun Belt” markets, a category that includes Miami, Florida; Houston, Texas; Phoenix, Arizona; the Tampa-St. Petersburg area in Florida; and San Antonio, Texas. These cities experienced high in-migration over the past two years along with the “supernovas” group that includes Nashville and Austin.

San Antonio made a big advance from No. 21 last year to No. 12 for overall real estate prospects. There’s no discussion of a reason behind the big jump, but San Antonio ranked No. 1 for homebuilding prospects.

Nashville had the No. 1 spot among local market experts on public-private investments at a time when the city is considering building a $2.1 billion domed stadium for the NFL’s Tennessee Titans across from downtown next to the existing stadium, which will be demolished.

A report from the Sycamore Institute, a Nashville-based public policy research organization, put the total funding from public tax revenue at $1.5 billion, concluding that would be the “largest taxpayer subsidy for an NFL stadium on record.” To make the numbers work, a big part of the plan is building a neighborhood around the new stadium.

Nashville has been one of the strongest apartment markets in the country. Job growth has been a big driver, and that will continue to be the case. E-commerce giant Amazon is close to finishing its second office building there for an operations center employing at least 5,000 people.

The Amazon buildings anchor a development called Nashville Yards at the western edge of Downtown. San Diego-based Southwest Value Partners now has a mixed-used entertainment district under construction that will include 2,000 apartments as well as offices and space for live entertainment with partner AEG.

Austin-based software giant Oracle is building a big campus near downtown Nashville with promises of employing 8,000 people in high-paying tech jobs. Nashville apartment sales this year have surpassed last year’s record of $4.22 billion to more than $4.4 billion.

Nashville is third among the top places for multifamily investment next year. It falls in the report's "strong buy" category behind Raleigh and New York City’s Brooklyn borough. 

Housing affordability, however, in Nashville as well as other high-flying cities is prevalent because of rapid growth, notably those in the supernova category. Housing construction hasn’t been able to keep up with demand. 

The ULI report notes that living costs, housing affordability and infrastructure quality are regional disadvantages that came up frequently in such booming markets as Austin and Nashville.

The supernova category’s luster has “faded somewhat as their unfettered growth has invited some big-city problems like congestion and rising living costs,” the report says.

One focus group participant responded that “Nashville is like a teenager. We have grown too quickly and haven’t decided what we want to be when we grow up.”