An ongoing boom in hotel development and strong fundamentals provide little fodder for Nashville’s country music songwriters.
NASHVILLE, Tennessee—The Music City has proven to be one of few outliers in the United States’ urban hotel landscape for its positive year-over-year performance between 2011 and 2016.
According to STR, parent company of Hotel News Now, Nashville’s performance boom started as early as 2012, when revenue per available room, in particular, increased by 9%. Nashville RevPAR peaked at 18.5% in 2014 before coming back to a more moderate 8% in 2016.
Likewise, 2012 kicked off with 3.5% growth in average daily rate, cresting at 12.8% in 2014 and returning to a respectable 6% increase in 2016. In the same time period, demand continuously outpaced supply. Beginning in 2012, room inventory expanded 1.7% in the face of 7.1% demand growth, held at 1.7% growth again in 2014 when demand surged 6.8%, and ended 2016 with supply increases catching up at a rate of 2.2% to 4.1% upturn in demand.
“Nashville has been one of the best-performing U.S. markets for the last five years because there are a lot of built-in demand generators like the city’s health care industry, universities and the government entities that are here because this is also the state capital,” said Bobby Bowers, senior vice president of operations at STR. “But I think the city has also benefited a lot from the TV show ‘Nashville’ and all of the marketing surrounding it.”
The demand is also reflected in a 45% increase in annual visitors in the last 10 years, which includes a record 13.9 million guests in 2016, up from 9.6 million in 2006, according to the Nashville Convention & Visitors Corporation.
Butch Spyridon, president of the Nashville CVC, attributed the unremitting gains in visitation numbers to the city’s rising profile and ability to host events such as the annual Country Music Association Music Festival. Another demand generator arrived in 2013, when the 2.1-million-square-foot Music City Center opened its doors.
With Nashville on the rise, hotel developers have been quick to swoop in. In the last year alone, new hotel openings have included the 180-room Kimpton Aertson, the 124-room 21c Museum Hotel Nashville, the 224-room Thompson Nashville and the 453-room Westin Nashville.
Coupled with an additional 114 projects under contract according to STR’s June 2017 Nashville Pipeline Report, the incursion of supply—up just 3.6% in the first six months of 2017—is finally overtaking demand, up just 1.8% in the same time period when occupancy declined 1.7%. In Nashville’s Central Business District (CBD), supply has already increased 8.7% this year while a lower demand increase (+7.5%) has pushed occupancy down 1.1%.
Bowers said the demand for CBD room inventory is, in fact, the most significant growth the area has seen for the last two years.
“From an occupancy standpoint, it’s hard to move the needle much higher than it has been unless you start filling rooms on Sunday nights, and even in a market like Nashville, that’s hard to do,” he said, adding that the recent influx of supply will take some time for the market to absorb.
But Philip Forte, general manager of Nashville’s 21c Museum Hotel, has no complaints. The property has already exceeded its budgetary expectations for its second full month since opening.
“Nashville has really exploded, and there’s also been a ton of demand from the local market to see what we do,” he said.
Located across the street from Nissan Stadium—home of the NFL’s Tennessee Titans—and a few blocks from downtown’s Broadway epicenter, the boutique property is well-positioned for both business and leisure guests, Forte said, and many of the latter come for the city’s music scene. However, Forte added that the hotel dually benefits from visitors coming to Nashville because the city is also a burgeoning market for dining and the arts.
“This fits into our unique genre as well and in our pre-opening phase, we were surprised by how strong the interest (was) from the local arts community,” Forte said.
Despite what Spyridon described as a younger, more affluent travelers coming from domestic and global markets for the diverse experiences that Nashville now offers, he said Nashville hasn’t lost its core guest: slightly older country music fans from more regional markets.
“As U.S. cities tend to look somewhat alike, we’ve been able to hang on to our authenticity,” Spyridon said.
Alex Marks, principal of Royal Investments, developer of the 169-key Dream Hotel Nashville in the city’s Printer’s Alley neighborhood, said he doesn’t expect that cross-section of visitor demographics to wane. The property is a reported $100-million development that sits on the site of four existing buildings, including two historic properties. Marks said investors are expecting 40% of revenue to come from the hotel’s seven food-and-beverage outlets.
“Other boutique hotels in Nashville are owned by (real estate investment trusts) or outside money, but ours is unique because all of the investors are true Nashvillians who want to reinvest in the city, and what’s changing here is the dining scene,” Marks said. “In places like New York, you have a lot of nice dining options in hotels and they want to bring that here.”
He added that the property also fills a gap between Nashville’s full-service and select-service brand hotels.
“A lot of flags have come to town, but not a lot of boutiques,” he said.
But Marks said he also expects Nashville’s growing number of boutique hotels to put a strain on branded luxury hotel development since boutiques steal much of that market share and make it difficult for high-end properties to demand premium rates. Nonetheless, Mark said he anticipates downtown Nashville will see further hotel development, particularly in the financial district where Printer’s Alley lies as well as the neighborhoods of The Gulch, SoBro and West End.
Beyond the CBD, Bowers is forecasting more growth for the mixed-use development Berry Farms, in Franklin, Tennessee, as well as Hendersonville. But his outlook for Nashville isn’t without a touch of realism.
“Nashville has been on a roll, but eventually it will cycle down and then there will be a downturn that will eventually turn back up again, but that doesn’t appear to be on the horizon,” Bowers said.