Nashville Office & Residential Demand Analysis 11-26-18...Dec 05, 2018 · DEMAND ANALYSIS Exhibit 2 The Importance of Millennials CHANGE IN POPULATION, 2017-2027 Source:NOELL CONSULTING

ESTIMATED DEMAND POTENTIAL FOROFFICE AND RESIDENTIAL IN DOWNTOWN NASHVILLE

Nashville Downtown PartnershipMetropolitan Development & Housing Agency

JULY 2018www.NoellConsulting.com CONTACT | 404.681.0006

DOWNTOWN NASHVILLERESIDENTIAL AND OFFICEDEMAND ANALYSIS

Exhibit 1Executive Summary

Source: NOELL CONSULTING GROUP

GOALS

The Nashville Downtown Partnership and Metropolitan Development and Housing Agency retained Noell Consulting Group to estimate potential market depth and demand for new office and residential (rental and for‐sale) development in Downtown Nashville in the coming 5 to 10 years. In addition, the two entities wanted to understand how Downtown Nashville compares relative to its other current competitors as well as "aspirational" cities' downtowns. The following summarizes our key conclusions resulting from our research and analysis.

SITUATION

Nashville's economy has been in overdrive for the last six years, capitalizing on a recovering national economy, a high quality of life and strong tax environment. Downtown Nashville has been perhaps the biggest beneficiary of this strong recovery, capturing large shares of not only residential growth, but office/employment growth. Major demographic shifts, including the rise of Millennials as the dominant cohort in the workforce today as well as Baby Boomers transitioning to Empty Nesterhood, have led to the renaissance of urban cores throughout the country, and Downtown Nashville with its strong dining and entertainment scene and high levels of convenience and walkability, has been a major beneficiary. Millennial growth and preferences, in particular have been driving Downtown demand for office and residential in the last few years.

Looking forward, economic forecasts indicate more moderate growth (adjusted upward by NCG to reflect a stronger‐performing, with low unemployment rates, slowing immigration, and Boomers exiting the workforce with fewer young people entering. Forecasts in Nashville (provided by Moody's) indicate more moderate growth (adjusted upward by NCG), albeit with a continued focus on mixed‐use, walkable (preferably transit‐served) cores, particularly downtown.

OFFICE DEMAND

While Downtown Nashville has been a historically smaller Downtown relative to the size of the metro area (when compared to other metros), it has become very active as an office market, absorbing more than 1.8MM square feet of space in the last three years alone; more than 44% of all absorption in Metro Nashville. A strong development pipeline and corporate relocations from outside of market (most notably Alliance Bernstein's relocation and the addition of Amazon) and within the market (relocations from the suburbs into Downtown) will fuel demand for office space over the next five years. New grocery stores, and urban market and growing retail offerings will further the Downtown lifestyle and help push lease rates higher. Later in this time period we believe that lease rate growth will create further opportunities for Downtown‐adjacent areas (such as Germantown, Music Row, and River North) which may slightly erode this capture over time. Overall we estimate demand for new office space will drive the absorption of 4.05 MM square feet over the 2018 to 2026 time frame (449,000 SF annually). Office tenant needs are also shifting across the nation; in most employment cores tenants are squeezing more employees into less space. In the most expensive metros square feet per employee can be as low as 60SF/person in coworking environments.

RESIDENTIAL DEMAND

Residential growth has already been strong over the past five to six years and construction activity has been substantial. Millennials seeking more urban and walkable environments have fueled demand for these rental apartments, with empty nesters representing a small, but growing, market audience. Intown Nashville (inside of I‐440) has accounted for more than 40% of apartment demand in 2016 & 2017 and is poised to continue this high level of capture in the coming years. Downtown will capture an increasing share of this intown growth, as the Gulch expands northward and SoBro continues to bloom. We expect apartment demand to moderate in the long term as high rents drive demand to other submarkets. Overall we estimate demand from 2018 through 2026 to be around 7,295 units.

The Nashville condo market will remain a more moderate force in Downtown, tempered by the nationwide challenges of a slower economy, continued finance hurdles, and moderate demand from Millennials for the price points available in Downtown Nashville. Demand estimates have been provided for the initial five years examined and extended out to 2026. This higher‐end condo demand is estimated to be around 772 units in total, resulting in total demand for around 8,067 or so total units through 2026.

KEY ISSUES

We believe several key issues should be focal points for investment in Downtown to maximize potential investment and growth Downtown. Included in these are investments in open space & parks, improved traffic flow, moves to provide transit options, and efforts to provide more affordable housing options for those being priced out of the market. Despite strong demand market conditions are driving up development costs more quickly than rents are increasing. If interest rates, material costs, labor costs and land costs continue to climb new projects will encounter obstacles to bringing new product to Downtown.

‐6.5%

16.8%

16.7%

16.9%

11.0%

‐15.3%

44.1%

‐1.0%

26.5%

‐20% 0% 20% 40% 60%

Charlotte

Atlanta Midtown

Seattle

Austin

Portland

Denver

Nashville

Tampa

Indianapolis

Downtown Shares of Metro Office Absorption, 2015 ‐ 2017

Executive Summary12/5/20182


Exhibit 2The Importance of MillennialsCHANGE IN POPULATION, 2017-2027

Source: NOELL CONSULTING GROUP based on data obtained from Pew Research Center and the US Census Bureau

Key generational shifts are having a massive impact on shifting demand for real estate products. Chief among these are the rise of the Millennials and the aging of the Baby Boomers. As can be seen on these charts, Millennials now account for the largest share of the US Labor Force and are expected to continue to climb. While the Millennials and Boomer generations are similar in size the millennial generation is not expected to match the Boomers peak work labor force numbers of 66 million. These Millennials value

walkable, accessible, and vibrant locations, including urban and even suburban downtowns. To secure the strongest talent, companies have shifted their locations from areas that were most convenient to where the bosses live to those most attractive to the Millennial workforce. With this, urban cores and downtowns have seen their shares of office and

residential demand increase exponentially in the past 10 to 20 years. Nashville has seen strong evidence of this trend, particularly in the last five years.

‐3,000,000

‐2,000,000

‐1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

0 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 to 44 45 to 49 50 to 54 55 to 59 60 to 64 65 to 69 70 to 74 75 to 79 80 to 84 85 +

2017‐2022 2022‐2027

MILLENNIALS FORMING FAMILIES

BOOMERS AGING OUT OF HOMES

GEN X IS SMALLER THAN THE BOOMER GENERATION

GENERATION Z WILL BE SLIGHTLY SMALLER THAN THE MILLENNIAL GENERATION

Demo Trends12/5/20183


Exhibit 3Shifting Generations Among Center Cities in the US

Source: US Census

Phoenix

Los Angeles

San Diego

Denver

Washington

Jacksonville

Miami

New York

Charlotte

Austin

DallasFort Worth

Houston

San Antonio

Seattle

NashvillePhoenix

Los AngelesSan Diego

Denver

Washington

Jacksonville

Miami

New York

Charlotte

Austin

Dallas

Fort Worth

Houston

San Antonio

Seattle

Nashville

13.5%

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

19.0%

19.5%

14.5% 15.0% 15.5% 16.0% 16.5% 17.0% 17.5% 18.0% 18.5% 19.0% 19.5% 20.0% 20.5% 21.0% 21.5% 22.0% 22.5% 23.0%

% OF PO

PULATION 50 ‐6

4

% OF POPULATION 25 ‐ 34

2016 FASTEST GROWING CITIES MIX OF EMPTY NESTERS AND MILLENNIALS

2010 2016

*SIZE = ANNUAL CITY GROWTH RATE

MORE EMPTY NESTERS / MORE MILLENNIALS

MORE EMPTY NESTERS / LESS MILLENNIALS

LESS EMPTY NESTERS / MORE MILLENNIALSLESS EMPTY NESTERS /

LESS MILLENNIALS

2010 average W/O Nashville

2016 average W/O Nashville

As can be seen in the graph above, nearly every major metro in the US has seen it's center city (e.g. city of Atlanta, city of Fort Worth) see it's shares of Boomers and Millennials increase over the past six years. Nashville has seen it's share of Millennials increase substantially (shifting right on the growth above) as well as well as it's share of Boomers (shifting upwards). These shifts have been in line with those

seen throughout the US.

Shifting Demographics12/5/20184


Exhibit 4Generational Migration - 2016 USA's Fastest Growing Cities vs Nashville

Source: US Census

‐0.10%

0.40%

0.90%

1.40%

1.90%

2.40%

2.90%

ANNUAL POPULATION GROWTH IN PRIMARY CITIES

'00‐'10 Yrly Growth Rate" '10‐'16 Yrly Growth Rate'00‐'10 Avg Growth '10‐'16 Avg Growth

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

21.0%

22.0%

23.0%

25 ‐ 34 YEAR OLDS AS % OF CITY POPULATION

2000 2010 2016 2000 Avg 2010 Avg 2016 Avg

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

50 ‐ 64 YEAR OLDS AS % OF CITY POPULATION

2000 2010 2016 2000 Avg 2010 Avg 2016 Avg

Return to The City:Similar to the previous exhibit, NCG is comparingNashville's growth to the 15 fastest growing cities in the nation. Most large cities are experiencing a renaissance of sorts as young professionals and empty nesters move closer to the core. The

nations fastest growing cities demonstrate this trend clearly and make for an easy comparison and

benchmark.

Comparing these cities is simply highlighting the inbound migration of select cohorts in cities with established cores. Nashville should expect it's in town, established cores to behave similarly,

especially over the 2010‐2016 time frame. As can be seen at left, growth has been relatively solid in Nashville‐Davidson in the 2010s, with growth

coming form both Millennials (25 to 34; bottom left) and Maturing Boomers (50 ‐ 64; bottom

right).

Return to Core12/5/20185


Exhibit 5The Importance of Millennials

Source: NCG based on data from the Pew Research Center and Demand Institute

WHY ARE MILLENNIALS SO IMPORTANT?

They are now the largest component of the US labor force, passing Gen X and Boomers in size.

Their work hours are increasingly non‐conventional and proximity of home and office more important.

Value increased level of connectivity with work, coworkers, friends, home‐‐convenience becomes increasingly important.

Competition for Millennials strongest in creative industries but spreading to conventional office users.

HOW DO THEIR PREFERENCES IMPACT OFFICE LOCATIONS?

Greater interest in more walkable/urban locations:

‐ 47% say it's very important to live and work without relying on a car

‐ Car ownership below those of other generations at their respective ages

‐ 64% prefer/require walkable locations

‐ 62% want to live in mixed‐use communities in close proximity to shopping, dining, and work.

‐ 38% want to live in urban locations such as Downtown Nashville;

Surprisingly, suburban locales fare even better, although finding walkable locations tougher.

Millennials will comprise the overwhelming share of office workers within a decade and are driving office location decisions. They value walkable, mixed‐use locations with transit access and can live in urban or

suburban town center settings.

Millennials12/5/20186


Exhibit 6Millennials and Transportation Preferences

Source: Noell Consulting Group, National Association of Realtors

‐ 59% say expanding public transportation is a high or very high priority.

‐ Millennials have the least interest in roads & highways of all generations.

‐ 53% say developing communities where people don't have to drive to work or shop is a high or very high priority.

‐ 45% prefer a scenario where housing is mixed in type, stores are walkable, and transit is nearby over a scenario where housing is largely single‐family, stores aren't walkable and transit is not available

‐ While Nashville's transit referendum failed recently, Downtown's mixed‐use environment, high level of walkability and growing level of convenience will make it more and more attractive to these influential households.

% Using Mass Transportation in the Past 30 Days

Millennials in particular have a high interest in areas accessible via transit as well as those with other transportation options besides the car, including walking and biking. Furthering these factors will be very

important to Downtown Nashville going forward.

Millennials and Public Transit12/5/20187


Exhibit 7National Office Trends

Source: CoStar

45,5

35,0

16

56,8

47,5

11

39,6

84,5

82

36,8

70,7

56

42,0

28,6

44

40,3

99,7

29

30,2

21,7

66

31,9

97,8

15

24,8

55,5

85

23,6

02,8

47

17,3

12,7

93

12,5

78,3

81

12,1

24,9

93

13,7

32,0

28

9,62

2,14

5

12,2

11,5

39

9,90

0,28

6

12,1

08,6

87

10,5

78,7

58

12,0

51,2

77

16,6

22,4

38

10,5

52,3

54

14,6

76,7

38

17,2

77,7

31

16,1

87,1

02

18,8

68,1

33

14,7

32,6

37

16,4

89,6

97

24,1

89,1

50

20,3

61,9

48

21,2

63,3

82

21,9

90,0

61

29,2

30,5

25

21,9

99,4

94

22,8

23,8

19

23,3

46,9

31

24,4

84,3

66

23,4

98,9

15

26,6

74,7

34

24,2

44,4

97

26,4

36,7

56

22,6

66,9

62

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

55,000,000

60,000,000

'07Q4

'08Q1

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Total Inven

tory in

Millions of S

F

NATIONAL DELIVERIES AND VACANCY

Deliveries SF Vacant Available Percent % Direct

$18.00

$19.00

$20.00

$21.00

$22.00

$23.00

$24.00

$25.00

'07Q4

'08Q1

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'18Q1

NATIONAL AVERAGE DIRECT BASE RENTS & SUBLET RENTS

Office Base Rent Direct

Nationally office deliveries have yet to return to the highs achieved in the mid to late 2000s and, given trends impacting demand (e.g. less space per employee), such a return is highly unlikely. In fact, quarterly office deliveries over the last few years have infrequently even reached half of the pre Great Recession high of 56 million SF of deliveries in a single quarter. Additionally, office sublet prices have

slowly been approaching parody with direct base rents.

Nation Wide Office12/5/20188


Exhibit 8Nation Wide Office Vacancy and Direct Leasing by Grade

Source: CoStar

‐100%

‐80%

‐60%

‐40%

‐20%

0%

20%

40%

60%

80%

100%

'08Q1

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NATIONAL OFFICE; DISTIRBUTION OF DIRECT LEASES BY GRADE

Class C, SF Direct Class B, SF Direct Class A, SF Direct

0%

5%

10%

15%

20%

25%

'07Q4

'08Q1

'08Q2

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OFFICE NATION WIDE VACANT DIRECT BY GRADE

Class A Vacancy Class B Vacancy Class C VacancyNashville Class A Vacancy Nashville Class B Vacancy Nashville Class C Vacancy

Many of the nation's office operators are reporting a flight to quality in larger and growing metros. The exhibit above shows the vacancy by type, keep in mind that new office construction has been popular and in demand as these large properties come online and lease up they momentarily boost vacancy rates. Nationally the direct leasing trends help to highlight the sizeable quantity of new Class A office coming online and the

heavily occupied class C and B.

Office Flight to Quality12/5/20189


Exhibit 9Nation Wide Office Vacancy and Direct Leasing by GradeClass A

Class B

Class C

Source: Noell Consulting Group based on data obtained from Costar

TYPICAL DESCRIPTION- Located in highest density employment cores,

typically in top 50 metros- Mid-rise or high-rise construction built in this

cycle- Easily accessed by mass transit or interstate

- Significant on site parking- Top or market rents

NATIONAL STATS3,610,421,029 SF of inventory

Trailing 10 year average direct vacancy of 12%;Q1 2018 direct vacancy of 11.1%

Quarterly avg. absorption (trailing 10 yrs): 10,815,322 SF

Net Direct Leased Qtrly Avg. '17: 14,759,313 SF

Q1 2018 Avg Direct Base Rent: $28.00Q1 2018 Avg Direct Gross Rent: $31.15

Nashville's Downtown is largely comprised of Class A&B properties, those developed in previous cycles with little true Class A space available. A wave of new construction is impacting this, with Class A properties on the increase. In the short term this wave of construction combined with tenants packing more employees into smaller spaces may lead to short term oversupply. Nationally, average space per employee ratios for office

has shifted down over the years, as employers seek . In 2017 the average square footage per employee is around 150, this is down from 176 SF/employee in 2012, and 225 SF/employee in 2010. In the case of open/shared space that is popular with startups and technology companies the average SF/employee can be as low as 60 square feet in the most expensive employment cores such as San Francisco and more

typically ranges between 100 and 150 square feet. Studies have shown that tenants in the South tend to have higher square feet per employee ratios than do firms in the West and Northeast, where space is more expensive.

TYPICAL DESCRIPTION

- Mix or new construction on challenged sites and construction from previous cycle in strong

location - Mid-rise, High-rise with renovations or very well

executed adaptive re-use. Some will also be antiquated high-rise construction

- Some will have limited on site parking or accessibility issues


Trailing 10 yr average direct vacancy of 10.5%;Q1 2018 direct vacancy of 8.6%

Quarterly avg. absorption (trailing 10 yrs): 6,683,404 SF

Direct Leased Qtrly Avg. '17: 8,225,216 SF


TYPICAL DESCRIPTION- Mix of less ideal location and older structures

with limited contiguous space- Older low-rise and/or historic in relatively strong

locations -OR- Newer mid-raise product in secondary office cores

- Limited on site parking or accessibility issues


Trailing 10 yr average direct vacancy of 7.3%;Q1 2018 direct vacancy of 5.2%

Quarterly avg. absorption (trailing 10 yrs): (946,549) SF

Direct Leased Qtrly Avg. '17: 104,163 SF


NASHVILLE DOWNTOWN STATS6,163,338 SF of inventory

Trailing 10 year average direct vacancy of 10.7%;Q1 2018 direct vacancy of 6.1%

Quarterly avg. absorption (trailing 10 yrs): 70,634 SF


Q1 2018 Avg Direct Base Rent: $34.12


Trailing 10 yr avg direct vacancy of 15.9%;Q1 2018 direct vacancy of 8.8%

Quarterly avg. absorption (trailing 10 yrs): 15,039 SF




Trailing 10 yr avg direct vacancy of 3.9%;Q1 2018 direct vacancy of 1.6%

Quarterly avg. absorption (trailing 10 yrs): (1,936) SF



Office Grades12/5/201810


Exhibit 10Metro Nashville Employment Growth, 2001 - 2026

Source: Noell Consulting Group based on data obtained from Moody's/Economy.com

‐5,832

‐6,226

6,50

6

16,940

18,618

16,124

9,04

1

‐1,397

‐38,04

4

6,12

0

23,574

29,400

29,521 33

,817

34,622

35,782

28,549

27,451

22,432

8,63

2 12,348

22,663

14,269

12,794

11,164

8,74

6

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026‐40,000

‐35,000

‐30,000

‐25,000

‐20,000

‐15,000

‐10,000

‐5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Historic and Projected Job Growth in Metro Nashville

Nashville Metro Emp. Growth

Recovery from the Great Recession, accompanied by Millennials flooding into the workforce, created very strong employment growth from 2011 through 2019. Growth from Professional Services and Healthcare help to fuel office demand during the

period.

National economists believe an economic slowdown will occur in 2020/2021, with the next cycle's growth being more modest. Demographic "headwinds", including Boomers beginning to

retire, Millennials already being in the workforce, and slowdowns in immigration, will act as headways against employment growth

The growth cycle in the 2000s was bookended by two recessions, the ".com" bubble in 2001 and the Great

Recession in 2008 ‐ 2010. Nashville's overall growth was more moderate relative to key competitors during this

period.

Moody's /Economy.com is forecasting a national economic slowdown in 2020 and 2021, followed by a period more modest economic growth. The nation's low current unemployment rate, combined with a "demographic headwind", in which fewer people are entering in the workforce and immigration is slowed, will temper economic growth nationally and in the Nashville area in the coming years. This said, Nashville's recent landing of Alliance Bernstein and Amazon will help offset this slowdown in the near‐term, with employment growth in the coming cycle averaging only around 15,611 jobs annually, quite modest compared to the current cycle average of around 28,100 net new jobs annually.

NOTE: NCG actually revised the Moody's/Economy.com forecast for Nashville upwards from their released forecast. NCG examined national forecast data and that for Charlotte and Atlanta and, based on slowdowns seen in those two markets and nationally, adjusted Nashville's moderation to be more in line with that of these areas, then factored in relocations from Alliance Bernstein and Amazon in 2021.

Employment Growth Forecasts12/5/201811


Exhibit 11Key Opportunities and Threats to Ongoing Office Absorption

SOURCE: Noell Consulting Group based on data obtained from Costar

KEY STRENGTHS• Growing corporate tenant base• Now includes Alliance Bernstein and Amazon• Two new grocery stores on the way create lifestyle for work or home• New 5th & Broadway food market and retail create new downtown destination• Growing residential base enhances sense of lifestyle• High levels of walkability and solid bar/dining environment

PERCEIVED HEADWINDS• Worsening traffic and failure of transit vote• High lease rates‐‐pushing $50/SF in some spaces• Price alternative locations outside of Downtown (e.g. Germantown, Music Row, River North, etc.)• Lack of green space/parks and public space can generate lease rate premiums and act as focal points for office.

Lack of parks/green space

Traffic issues/lack of transit

New food hall

Office Context12/5/201812


Exhibit 12Performance of the Downtown Nashville Office Market

SOURCE: Noell Consulting Group based on data obtained from Costar

271,53

6

0 0 0 0 0

3,43

0

338,00

0

0

615,24

1

70,758

3,79

5

19,411

38,000

0 216,44

6

827,71

9

40,000

300,00

0

1,48

4,00

0

1,44

5,00

0

76,637

640,00

0

0 0 0

42%

‐23%

0%‐6%

3%9%

‐21%

‐1%

20%

9% 9%

36%

10%

31%

53%

89%

‐550,000

‐275,000

0

275,000

550,000

825,000

1,100,000

1,375,000

1,650,000

‐40%

‐20%

0%

20%

40%

60%

80%

100%

Downtown Office Deliveries and Capture of Metro Absorption

Downtown Office Deliveries Downtown as a % of Metro Nashville Downtown as a % of Metro Nashville

‐175,475

23,660

‐132,898

1,037

‐64,182

32,687

284,338

‐400,440

‐7,409

156,39859,081 79,716

157,876110,870

487,746

856,268

453,803

121%

42%

‐23%

0%

‐6%

3%9%

‐21%

‐1%

20%9% 9%

36%

10%

31%

53%

89%

‐40%

‐20%

0%

20%

40%

60%

80%

100%

120%

140%

‐600,000

‐400,000

‐200,000

0

200,000

400,000

600,000

800,000

1,000,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Downtown Office Absorption and Captures of Metro Office Demand

Downtown Office Absorption Other Intown Office Absorption Downtown as a % of Metro Nashville

As can be seen in the charts above and below, Downtown Nashville has seen a substantial uptick in development and absorption of office space between 2015 and 2017, capturing nearly 1.8 MM square feet of absorption in just three years. This growth has come at the expense of Intown Nashville (inside 440) beyond Downtown as well as the Nashville suburbs.

As can be seen in the graph below, this capture is more than double those of other well‐performing downtown areas (using Atlanta's Midtown) over the last three years.

A significant development pipeline will allow Downtown to continue to capture a strong share of demand in the coming eight to nine years, with Intown Nashville gradually capturing back its share of absorption as Downtown space continues to become more expensive and opportunities for well‐positioned price alternative areas continue to emerge.

‐6.5%

16.8%

16.7%

16.9%

11.0%

‐15.3%

44.1%

‐1.0%

26.5%

‐20.0% ‐10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

Charlotte

Atlanta Midtown

Seattle

Austin

Portland

Denver

Nashville

Tampa

Indianapolis

Downtown Shares of Metro Absorption, 2015 ‐ 2017

*Green bars represent expected deliveries after matriculation: 2,872,249 SF

Office Demand Graphs12/5/201813


Exhibit 13Downtown Captures of MSA Employment (2015)

Source: NCG based on data obtained from OnTheMap

9.1%

26.7%

23.8%

3.0%

14.0%

27.0%

6.0%

24.7%

7.0%

0%

5%

10%

15%

20%

25%

30%

Austin Charlotte Indianapolis Tampa Denver Portland Atlanta Seattle Nashville

% BID Jobs in Finance and Insurance

14.5%

20.3%

27.6%

7.8%

19.6%

24.9%

7.8%

25.5%

12.6%

0%

5%

10%

15%

20%

25%

30%


% of Jobs in Professional, Scientific and Technical Services

4.1%

35.8%

20.3%

5.3%

19.4%

12.5%

7.5%

22.5%

9.3%

0%

5%

10%

15%

20%

25%

30%

35%

40%


% of BID Jobs in Management of Companies

9.3% 9.1%

15.5%

5.5%

8.5%

7.4%

5.0%

10.6%

7.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


% of MSA Jobs in Downtown Core

PEER CITIES

ASPIRATIONAL CITIES

As part of our analysis, NCG looked at other competitive and "aspirational" metro downtowns to provide context relative to Downtown Nashville's current and recent market performance. This specific exhibit compares Downtown Nashville to these other downtowns in terms of select professions they capture from their respective MSAs. Total jobs is shown but the three sectors targeted beyond that all have heavy office requirements and tend to offer more competitive compensation, giving those employees the option to live in more expensive but convenient housing options.Overall, Nashville's employment base and share of office jobs has been lower than most of its competitive and aspirational cities. This said, brokers have noted a solid shift in relocations into Downtown from not only out of market firms, but also firms moving within Nashville--data that shows up in 2016 & 2017.

AVG.AVG.

AVG.

AVG.

Downtown Capture of Employment12/5/201814


Exhibit 14Estimated Demand Potential for New Office Space in Downtown Nashville

2010 2011 2012 2013 2014 2015 2016 2017 2001 ‐ 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026Nashville Metro Emp. Growth 6,458 23,858 30,025 29,583 33,908 34,450 36,350 29,183 14,454 27,451 22,432 8,632 12,348 22,663 14,269 12,794 11,164 8,746Key Office‐Serving Emp. Growth 6,416 9,297 10,532 10,723 13,650 13,187 12,623 7,471 5,062 5,882 6,637 3,501 5,777 6,122 4,346 4,235 3,718 3,088

Office AbsorptionMetro Nashville 767,250 685,299 924,669 444,350 1,166,600 1,565,667 1,616,421 508,310 996,565

Square Feet Absorbed/Net New JobTotal Growth 118.8 28.7 30.8 15.0 34.4 45.4 44.5 17.4Office‐Using Growth 119.6 73.7 87.8 41.4 85.5 118.7 128.1 68.0 196.9 195.0 195.0 195.0 195.0 195.0 195.0 195.0 195.0 195.0

Averages '08 ‐ '10 '11 ‐ '17 '18 ‐ '26Total Growth 301.0 31.8 0.0Office‐Using Growth ‐864.8 89.2 195.0

Projected Metro DemandOffice‐Using Growth 767,250 685,299 924,669 444,350 1,166,600 1,565,667 1,616,421 508,310 987,331 1,146,975 1,294,127 682,778 1,126,515 1,193,829 847,515 825,863 725,052 602,123

Nashville‐Davidson County 337,807 196,666 411,737 58,774 778,653 950,811 1,271,942 666,906 428,450 860,232 970,595 580,361 1,013,863 775,989 550,885 536,811 435,031 361,274Capture of Metro Absorption 44.0% 28.7% 44.5% 13.2% 66.7% 60.7% 78.7% 131.2% 43.0% 75% 75% 85% 90% 65% 65% 65% 60% 60%

'08 ‐ '10 '11 ‐ '17 '18 ‐ '2610.1% 62.7% 72.1%

Intown Nashville 212,163 101,122 234,955 126,214 367,875 697,482 820,600 446,393 244,159 645,174 776,476 522,325 1,064,556 620,791 413,164 402,608 304,522 252,891Capture of Nashville‐Davidson 62.8% 51.4% 57.1% 214.7% 47.2% 73.4% 64.5% 66.9% 57.0% 75% 80% 90% 105% 80% 75% 75% 70% 70%

'08 ‐ '10 '11 ‐ '17 '18 ‐ '26‐37.8% 64.5% 82.2%

Downtown Nashville 156,398 59,081 79,716 157,876 110,870 487,746 856,268 453,803 113,122 548,398 660,005 470,093 958,101 496,633 289,215 261,695 197,939 164,379Capture of Intown Nashville 73.7% 58.4% 33.9% 125.1% 30.1% 69.9% 104.3% 101.7% 46.3% 85% 85% 90% 90% 80% 70% 65% 65% 65%

'08 ‐ '10 '11 ‐ '17 '18 ‐ '2673.7% 78.9% 80.9%

SOURCE: Noell Consulting Group, using data from Moody's Analytics and Costar. Note: Moody's job growth numbers bumped upward by NCG.

To understand demand potential for new office space in Downtown Nashville, NCG examined historic employment growth trends (focused on office-using sectors) in the metro area and related that to historic demand for office space. The trends from these relationships and planned development was then related back to future projected growth to derive metro office demand potential. Captures of demand were then calculated for Nashville-Davidson County, Intown Nashville, and Downtown Nashville through 2018. These cuts, trended based on the re-emergence of Downtown and trends occurring within that area and the larger market, indicate demand potential averaging around 449,000 SF of net space annually. This number is generally in line with that seen in the market since 2011, reflecting the momentum and

planned pipeline in Downtown Nashville. Metro employment growth and downtown capture account for Alliance Bernstein and Amazon announcements.

Office Demand12/5/201815


Exhibit 15Planned Pipeline and Future Market Conditions for Office in Downtown Nashville

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2018 - 2026

Downtown Nashville Office Absorption 110,870 487,746 856,268 453,803 548,398 660,005 470,093 958,101 496,633 289,215 261,695 197,939 164,379 4,046,457

Total Class A/B Space 10,019,521 10,059,521 10,359,521 11,843,521 13,288,521 13,365,158 14,005,158 14,005,158 14,005,158 14,005,158

Current Vacant Space (Class A/B) 1,221,272 712,874 352,869 1,366,777 1,853,676 1,433,680 1,784,466 1,522,770 1,324,831 1,160,452Estimated Vacancy Rate 12.2% 7.1% 3.4% 11.5% 13.9% 10.7% 12.7% 10.9% 9.5% 8.3%

Planned Additions to Downtown InventoryCapitol View - Office Block D 40,000Capitol View - Office Block E 300,000501 Commerce 385,000One KVB--Mainland 425,000Gulch Union Ph I 325,000Three Thirty-Three--Gulch 69,000Asurian HQ 470,000Peabody Plaza at Rolling Mill Hill Ph I 280,0001000 Church St - Nashville Yards 750,0001001 Church St - Nashville Yards 225,000915 Division St 76,637Peabody Union 170,000200 10th Ave North - Nashville Yards 470,000

Matriculation Factor 100% 100% 100% 100% 100% 100%Total SF delivering after matriculation 40,000 300,000 1,484,000 1,445,000 76,637 640,000

SOURCE: Noell Consulting Group based on surveys of properties.

Based on our current modeling efforts we believe Downtown Nashville can absorb around 4.0MM square feet of office space from 2018 through 2026, or around 444,000 SF annually. In the near-term vacancy rates are expected to be moderately high, peaking around 13.9% (temporarily as Amazon fills its tower) in 2021, then decreasing from there. The currently known pipeline includes roughly the same amount of space 3.985MM SF of space, of which we believe all will deliver in this timeframe. Given the low vacancy rates in the latter years of this analysis, we believe additional buildings could be announced beyond

that which is shown above.

Office Pipeline‐Vacancy12/5/201816


Exhibit 16National Multifamily

Source: NCG based on data obtained from CoStar

0

15,000

30,000

45,000

60,000

75,000

90,000

105,000

'00Q3

'01Q1

'01Q3

'02Q1

'02Q3

'03Q1

'03Q3

'04Q1

'04Q3

'05Q1

'05Q3

'06Q1

'06Q3

'07Q1

'07Q3

'08Q1

'08Q3

'09Q1

'09Q3

'10Q1

'10Q3

'11Q1

'11Q3

'12Q1

'12Q3

'13Q1

'13Q3

'14Q1

'14Q3

'15Q1

'15Q3

'16Q1

'16Q3

'17Q1

'17Q3

'18Q1

DELIVERIES AND NET ABSORPTION NATIONALY

Deliveries Units Net Absorption Units

‐5.0%

‐3.0%

‐1.0%

1.0%

3.0%

5.0%

7.0%

$0.80

$0.85

$0.90

$0.95

$1.00

$1.05

$1.10

$1.15

$1.20

$1.25

$1.30

$1.35

$1.40

$1.45

$1.50

'00Q1

'00Q3

'01Q1

'01Q3

'02Q1

'02Q3

'03Q1

'03Q3

'04Q1

'04Q3

'05Q1

'05Q3

'06Q1

'06Q3

'07Q1

'07Q3

'08Q1

'08Q3

'09Q1

'09Q3

'10Q1

'10Q3

'11Q1

'11Q3

'12Q1

'12Q3

'13Q1

'13Q3

'14Q1

'14Q3

'15Q1

'15Q3

'16Q1

'16Q3

'17Q1

'17Q3

'18Q1

EFFECTIVE RENT IN $/SF

Effective Rent Per SF Vacancy % Asking Rent % Growth/Yr

Nationally, rental apartment development has slowed in the last year or so, as oversupply, continuing material and land costs, and tighter lending standards begin to squeeze the market. While still solid, rent growth has moderated from peaks in 2015, yet still are averaging around 3% annual growth through early 2018. Continuing challenges on the for‐sale side, including continuous undersupply of new product and rapidly rising home prices, along with

Nation Wide Multifamily12/5/201817


Exhibit 17National Home Ownership Trends

Source: FRED

85.00

105.00

125.00

145.00

165.00

185.00

205.00

62%

63%

64%

65%

66%

67%

68%

69%

70%

HOME OWNERSHIP RATES VS HOME PRICE INDEX ‐ NATIONALLY

Home Ownership Rate Case Shiller U.S. National Home Price Index

3%

4%

5%

6%

7%

8%

9%

10%

11%

50

150

250

350

450

550

650

UNEMPLOYMENT VS NEW HOUSING STARTS

THOUSANDS OF HOUSING UNIT STARTS UNEMPLOYMENT RATE 12 per. Mov. Avg. (THOUSANDS OF HOUSING UNIT STARTS)

After more than a decade of decline, home prices have edged upward in the past two years to just above 64%. Tighter lending standards and a lack of new product at more moderate to affordable price points is tempering home purchasing. In addition, Millennial preferences for intown areas has resulted in significant home prices in these neighborhoods, tempering their ability to purchase new product close‐in. Low unemployment and aging Millennials seeking home ownership, combined with supply constraints have pushed home prices up significantly in the last six years, increasing the need for many in more moderate price points to remain in rental positions in the coming years.

Home Ownership Trends12/5/201818


Exhibit 18Rent vs Own Preference in Peer and Aspirational Cities

Source: US Census Bureau

4%

5%

6%

7%

8%

9%

10%

11%

CHANGE IN THE % OF MILLENNIAL (25 to 34) HOME OWNERS

2000 2010 2016

PEER CITIES ASPIRATIONAL CITIES

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

CHANGE IN THE % OF EMPTY NESTERS (50 to 64) HOME OWNERS

2000 2010 2016


2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

CHANGE IN THE % OF EMPTY NESTERS (50 to 64) RENTERS

2000 2010 2016


11%

13%

15%

17%

19%

21%

23%

25%

27%

29%

31%

33%

CHANGE IN THE % OF MILLENNIAL (25 to 34) RENTERS

2000 2010 2016


The graphs above show the change in the percentage of home owners inside city limits for millennial and empty nester cohorts. Unfortunately millennials are often priced out of more desirable in town cores and some of these higher priced cores are bid up by empty nesters.

The graphs below show the change in the percentage of renters inside city limits for millennial and empty nester cohorts. All of the peer and aspirational cities have seen an increase in the percentage of millennial renters since 2010 and this is partly a result climbing home prices and limited intown inventory but also a result of lingering affects of the housing crisis in terms of both buyer sentiment and the credit/debt environment. The climbing percentage of empty nester

renters in the cities has been driven by strong supply of new class A apartments convenient to employment/retail/entertainment cores. Many of these renters are downsizing from large homes in the suburbs and simplifying.

Household Preference12/5/201819


Exhibit 19Age and Income Analysis of the Downtown PMA and Comparison to I-440 Loop2000 - 2018 (estimates)

PMA Total Household Growth

2000 - 2018 15 - 24 25 - 34 35 - 44 45 - 54 55 - 64 65+ Total

$0 - $25,000 54 77 9 -16 66 60 250

$25,000 - $35,000 0 2 4 -7 30 -27 2

$35,000 - $50,000 25 174 53 7 32 2 293

$50,000 - $75,000 36 390 109 38 26 74 673

$75,000 - $100,000 5 276 127 22 8 30 468

$100,000 - $150,000 8 238 129 97 83 46 601

$150,000 - $200,000 5 47 35 56 35 37 215

$200,000 + 0 29 29 135 85 31 309

Total HHS Change since 2000 133 1,233 495 332 365 253 2,811

The PMA has added 2,811 household within the target age & income ranges since 2000, or 156 HH/yr.

Source: NCG, Nielsen, US Census Data

This exhibit visualizes the households by age and income, we are comparing the Nashville downtown to the are inside the I-440 loop for context. The table above shows the concentrations of the various age and income cohorts in the Nashville Downtown area. This is a small area for this type of comparison so any shift in population density will appear as a very large relative shift. The single most dense

household cohort is ages 25-34, earning between $50,000-$75,000 annually. The most dense age cohort overall is 25-34 and 73% of those households earn between $50,000 and $150,000.The graphs below compare the downtown area to everything inside the I-440 loop. While the downtown area is growing and outpacing the I-440 loop these numbers are a bit misleading as they show relative

growth and the downtown area is growing from a very modest in place household base.

8.0%

8.6%

5.7%

3.3%

6.0%

7.6%

10.9%

13.2%

10.1%

13.7%

11.5%

12.5%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

15 ‐ 24

25 ‐ 34

35 ‐ 44

45 ‐ 54

55 ‐ 64

65+

Household Growth By Age (HHs $50k+ Only)

Downtown I‐440 Loop

0.5%

2.9%

5.3%

10.6%

10.3%

12.6%

6.7%

9.2%

10.1%

19.1%

16.4%

21.9%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

$35,000 ‐ $50,000

$50,000 ‐ $75,000

$75,000 ‐ $100,000

$100,000 ‐ $150,000

$150,000 ‐ $200,000

$200,000 +

Household Growth by Income

Downtown I‐440 Loop

Primary Market Area

Comparison Area

Demo Graphs12/5/201820


Exhibit 20Summary of Renter Households in the Downtown, 2018

Income/Age 15 - 24 25 - 34 35 - 44 45 - 54 55 - 64 65 - 74 75 - 84 85+ Total

Less than $15,000 266 246 62 61 57 59 9 0 760$15,000 - $24,999 49 145 32 34 30 17 3 0 310$25,000 - $34,999 10 161 33 53 35 3 0 0 294$35,000 - $49,999 21 111 23 13 8 1 0 0 177$50,000 - $74,999 28 263 61 34 15 19 3 0 424$75,000 - $99,999 10 242 66 25 11 8 1 0 362$100,000 - $149,999 5 135 46 55 25 13 1 0 280Income $150,000 + 2 29 15 64 23 12 1 0 145

Total PMA Renter HHS 391 1,330 338 339 204 132 18 0 2,751

SOURCE: Noell Consulting projections based on data obtained from the US Census and Claritas, Inc.

The table above specifically focuses on renter households in downtown by age and income. The age cohort that makes up the largest share is 25-34 so young professionals are gravitating to the Nashville core and roughly half of those households are earning more than $50,000 annually. The largest income cohort is for households earning under $15,000 but we believe the majority of these are college students.

The graphs below combine the data above with census data to approximate the share of renters in various age, income, and household type cohorts. This analysis indicates that the vast majority of downtown renters are young professionals or college age, living alone and scattered in the income range.

$15,000 ‐$24,99916%

$25,000 ‐$34,99915%

$35,000 ‐$49,999

9%$50,000 ‐$74,99921%

$75,000 ‐$99,99918%

$100,000 ‐$149,999

14%

Income $150,000 +

7%

Target Market Income Distribution

Married Couples, 9.9% Roommate &

Unmarried Couples, 11.6%

Other Family, 7.1%

Singles, 71.4%

Target Market HH Type Distribution

15 ‐ 24, 14.3%

25 ‐ 34, 48.6%

35 ‐ 44, 12.4%

45 ‐ 54, 12.4%

55 ‐ 64, 7.5%

65 ‐ 74, 4.8%

Target Market Age Distribution

PMA Renter Demos12/5/201821


Exhibit 21Summary of Owner Households in the Downtown PMA, 2018

Income/Age 15 - 24 25 - 34 35 - 44 45 - 54 55 - 64 65 - 74 75 - 84 85+ TotalLess than $15,000 9 12 6 4 5 4 2 1 44$15,000 - $24,999 3 13 6 4 5 2 1 0 35$25,000 - $34,999 1 14 6 7 6 0 0 0 35$35,000 - $49,999 7 54 24 9 8 1 1 0 105$50,000 - $74,999 11 147 74 29 17 16 6 3 303$75,000 - $99,999 3 106 62 16 9 5 2 1 205$100,000 - $149,999 3 91 68 56 33 13 2 1 267Income $150,000 + 2 45 51 151 70 29 4 1 354

Total 39 482 299 277 154 71 18 7 1,349

Source: NCG, Nielsen, US Census Data

The table above only details the owner household cohorts by age and income. We again see a high concentration of 25-34 year old households but in this scenario the owner households are almost entirely those that earn more than $50,000 annually. Parsing this data with census data we see that the majority of the owner households are single, aged 25-44, earning more than $100,000 annually.

Married Couples, 30.4%

Other Family, 8.2%

Singles, 53.9%

Non‐Related Roommates, 7.6%

Target Market HH Type Distribution15 ‐ 243%

25 ‐ 3436%

35 ‐ 4422%

45 ‐ 5421%

55 ‐ 6412%

65 ‐ 745%

75 ‐ 841%

Target Market Age Distribution$15,000 ‐$24,999

3%

$25,000 ‐$34,999

3%

$35,000 ‐$49,999

8%

$50,000 ‐$74,99922%

$75,000 ‐$99,99915%

$100,000 ‐$149,999

20%

Income $150,000 +

26%

Target Market Income Distribution

PMA Owner Demos12/5/201822


Exhibit 22Nashville Employee Comparisons with Peer & Aspirational Cities

Source: OnTheMap

19.1%

30.1%

41.8%

16.5%

30.6%

22.5%

16.9%

28.9%26.3%

1.0%3.7% 2.8%

0.8% 1.6% 1.9% 1.6%2.9% 1.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%


Live / Work Patterns

% of Residents Also Working Downtown % of Workers Also Living Downtown

1.4%

9.8%

5.6%

1.7%

2.8% 3.0%2.4%

4.5%

2.7%

0%

2%

4%

6%

8%

10%

12%


29 & Younger: downtown employees that prefer to live in downtown

1.0%

1.6%

2.0%

0.4%

1.2%

1.9%

1.0%

1.9%

0.9%

0%

1%

1%

2%

2%

3%


55+: downtown employees that prefer to live in downtown

1.0%

2.8%

2.3%

0.7%

1.2%

1.8%

1.5%

2.7%

1.6%

0%

1%

1%

2%

2%

3%

3%


30 to 54: downtown employees that prefer to live in downtown

PEER CITIES

ASPIRATIONAL CITIES

Nashville's Downtown is similar to competitive and aspirational city downtowns in terms of commuting patterns. The graph in the top left corner details the percentage of people who live and also work downtown, as well as the percentage of all downtown employees who also live downtown. More than 26% of Downtown residents also work Downtown (fourth highest of the cities examined) and around 1.7% of all Downtown workers also live Downtown (ranking fifth among the set). Not surprisingly,

interest in living downtown is highest among younger employees in the area, with around 2.7% of these workers also living Downtown.

% of workers live downtown12/5/201823


Exhibit 23Downtown Rental Market Comparison

Source: CoStar, OnTheMap

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000


Downtown: Total Units‐‐Market Rate and Affordable

Affordable Market/Affordable Market Rate Units


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000


Downtown: Total Units by CoStar Rating

Class C Units Class B Units Class A Units


5.75

15.75

7.62 7.77

4.523.97

10.168.97

6.88

0

2

4

6

8

10

12

14

16

18


Class A&B Rental Units per 100 Jobs

Class A&B Rental+'Downtown MF Rental Units per 100 jobs Average


3,220

11,559 6,488

3,345

1,5761,173

3,300

9,156

4,072

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000


Downtown: Age of Inventory

Built before 2001 Built between 2001 and 2008 Built 2009 or later


Given the size of Nashville's downtown employment core, the amount of residential development that has occurred has been quite impressive with Downtown Nashville adding more than 4,000 rental units since 2009. In comparing the Class A&B rental unit totals to the number of jobs downtown we see that the number of housing units is inline with most peer cities and better than some aspirational cities. Some of the

downtowns compared are more mature in terms of restaurants, entertainment and general lifestyle, those in particular have an excellent ratio of housing to jobs ‐ this ratio is visualized in the bottom right corner. In terms of affordability Nashville lags behind and offers fewer affordable units than all other compared downtowns with the exception of Austin.

Downtown MF Rental12/5/201824


Exhibit 24Multifamily Owned Homes in Downtowns

Source: Census, OnTheMap

0

50

100

150

200

250

300

350

400

3 ‐ 9 Units Attached; Townhouse

2010 2016


0

100

200

300

400

500

600

700

800


10‐49 Units Attached; Townhouse & Low Rise Condo

2010 2016


1.13

2.19

0.761.01 1.11

2.71

2.001.88

1.71

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00


Condo & TH product in Downtown BID to Jobs ratio

Owned, Attached Homes in Downtown Average


0

500

1,000

1,500

2,000

2,500

3,000

3,500


50+ Units Attached; Mid Rise & High Rise Condo

2010 2016


In terms of ownership, attached housing product in downtown Nashville is relatively sparse. The graph at the bottom left shows the number of owner occupied condo and townhouse units per 100 jobs in the downtown area. The downtown Nashville area has approximately 1.7 owned condos and townhouses per 100 jobs, a ratio in line with many of the aspirational cities and better than many of the peer cities. As

Nashville's downtown employment grows the housing stock, specifically condos and townhouse product, will need to be developed as well.

Downtown MF For‐Sale12/5/201825


Exhibit 25Affordability Comparison

Source: NCG based on data obtained from the US Census.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%


% of OWNERS SPENDING MORE THAN 30% ON MORTGAGE

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%


% of RENTERS SPENDING MORE THAN 30% OF INCOME ON RENT

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Less than $20,000: $20,000 to $34,999: $35,000 to $49,999: $50,000 to $74,999: $75,000 or more:

RENT BURDENED RENTER by INCOME


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Less than $20,000: $20,000 to $34,999: $35,000 to $49,999: $50,000 to $74,999: $75,000 or more:

MORTGAGE BURDENED HOME OWNERS by INCOME


PEER CITIES

ASPIRATIONAL CITIES

Like its peer cities and aspirational cities, Downtown Nashville has a significant share of its residents who are cost‐burdened by rent or mortgage payments. Nashville is slightly higher on both metrics than the averages of its peer cities with a little more than one‐fourth of its owners being burdened and around 45% of its renters

being burdened. Among both groups the pain is greatest for households earning below $35,000 annually.

Avg: 82.9% Avg: 81.9% Avg: 53.3% Avg: 41.3% Avg: 9.12% Avg: 81% Avg: 77.4% Avg: 54.6% Avg: 34.8% Avg: 3.7%

Affordability12/5/201826


Exhibit 26Historic and Projected Job Growth to Apartment Absorption - Nashville MSAMSA JOB GROWTH

MSA CLASS A&B APARTMENT ABSORPTION

SOURCE: Noell Consulting Group, Costar and Economy.com | Moody's Analytics *Class A&B is a filtered set of CoStar results that represent top performers in the PMA

The Nashville apartment market has seen a significant uptick during this last cycle, with absorption averaging 3,150 units annually during that period, and peaking in 2017 at nearly 6,000 net rental units absorbed. By comparison, previous periods back to 2000 have averaged 1,020 units or less, this highlights the incredibly strong performance of the Nashville metro and the nation wide shift towards class A

rental. Going forward, we expect demand to moderate as job growth slows cyclically, with the market expected to average around 4,373 net units absorbed annually until 2022 and then slowing a bit to 2,723 net units annually until 2026. This averages to 3,640 units absorbed annually.

316

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584

57 68 910

586

965

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556

1,09

6

1,02

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1,37

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2,62

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3,62

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3,61

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5,92

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3,71

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3,19

9

2,23

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1,74

9

‐20

‐10

0

10

20

30

40

50

60

0

1,000

2,000

3,000

4,000

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6,000

7,000

Metro Absorption/10

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Jobs

Met

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Historic Absorption Projected Absorption Absorption/100 New Jobs Linear (Absorption/100 New Jobs)

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(6,2

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16,9

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-40,000

-30,000

-20,000

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10,000

20,000

30,000

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Met

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Historic Job Growth Projected Job Growth

2004 ‐ 2007:4.2 Apts/100 Jobs

2008 ‐ 2010:‐9.2 Apts/100 Jobs

2018 ‐ 2026:23.3 Apts/100 Jobs

2000 ‐ 2003:20.7 Apts/100 Jobs

2011 ‐ 2017:10.2 Apts/100 Jobs

2018 - 2026:3,640 Apts/year

2004 - 2007:15,181 Jobs/year

2011 - 2017:30,752 Jobs/year

2018 - 2026:15,611 Jobs/year

2000 - 2003:433 Apts/year

2004 - 2007:632 Apts/year

2008 - 2010:1,019 Apts/year

2011 - 2017:3,150 Apts/year

2000 - 2003:2,089 Jobs/year

2023 - 2026:11,743 Jobs/year

2018 - 2022:18,705 Jobs/year

2018 ‐ 2022:23.4 Apts/100 Jobs

2018 - 2022:4,373 Apts/year

2023 ‐ 2026:23.2 Apts/100 Jobs

2023 - 2026:2,723 Apts/year

Metro Demand12/5/201827


Exhibit 27Intown Nashville Capture of Metro Class A Apartment Absorption

MSA CLASS A APARTMENT ABSORPTION AND INTOWN NASHVILLE CAPTURE

INTOWN NASHVILLE CLASS A&B APARTMENT ABSORPTION

SOURCE: Noell Consulting Group (based on surveys of properties)

SOURCE: Noell Consulting Group and Costar

This exhibit shows the intown capture of the metro absorption. Intown Nashville market is defined as everything inside the I-440 loop, south of I-40 and I-65 and west of I-24. This area includes several of the intown cores that have become increasingly popular since 2011. Over the 2012 to 2017 time frame the intown core captured over 40% of the entire metro absorptions in three different years. With the strong

pipeline for the area and downtown we expect this to continue and climb. The intown area is expected to capture an average of 46.5% of the entire metro absorption over the next nine years. The capture equates to an average absorption of 1,692 units over the next nine years. The first five years of that nine year period are separated below to highlight the stronger five year projection and the remaining four

years that are expected to slow down but still remain stronger than 2023-2026.

-2

30 5

-1 -2

1

-3 -4 -1

161

256

3 594

1,19

9

804

991

1,32

8

2,76

2

3,02

0

2,46

8

1,49

2

1,70

4

1,83

6

1,66

9

1,43

9

938

665

-5000

5001,0001,5002,0002,5003,0003,5004,000

Abso

rptio

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Deliveries Historical Intown Nashville Absorption Projected Absorption

2011 - 2017:1,097 Avg. Abs.34.8% Capture

2018 - 2022:2,104 Avg. Abs.48.1% Capture

2004 - 2007:-02 Avg. Abs.-0.3% Capture

2000 - 2003:08 Avg. Abs.1.8% Capture

2008 - 2010:139 Avg. Abs.13.6% Capture

316

775

584

57 68 910

586

965

1,40

4

556

1,09

6

1,02

1

1,37

8

2,62

3

3,62

3

3,61

1

3,86

3

5,92

9

6,03

9

4,93

5

3,10

7

3,70

4

4,07

9

3,71

0

3,19

9

2,23

3

1,74

9

‐1% 4% 1% ‐2% ‐3% 0% ‐1% 0% 0%

29% 23%

0%

43% 46%

22% 27%34%

47% 50% 50% 48% 46% 45% 45% 45% 42% 38%

-30%

-10%

10%

30%

50%

70%

90%

0

1,000

2,000

3,000

4,000

5,000

6,000

Cap

ture

Rat

e

Abso

rptio

n U

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Historical Metro Absorption Projected Metro Absorption Intown Nashville Capture of Metro Absorption Linear (Intown Nashville Capture of Metro Absorption)

2018 - 2026:3,640 Apts/Yr

2008 - 2010:1,019 Apts/Yr

2004 - 2007:632 Apts/Yr

2000 - 2003:433 Apts/Yr

2011 - 2017:3,150 Apts/Yr

2018 - 2022:4,373 Apts/Yr

2023 - 2026:2,723 Apts/Yr

2023 - 2026:1,178 Avg. Abs.43.3% Capture

2018 - 2026:1,692 Avg. Abs.46.5% Capture

Intown Nashville Capture12/5/201828


Exhibit 28Downtown Capture of Intown Class A Apartment Absorption

INTOWN CLASS A APARTMENT ABSORPTION AND DOWNTOWN CAPTURE

DOWNTOWN CLASS A&B APARTMENT ABSORPTION

SOURCE: Noell Consulting Group (based on surveys of properties)

SOURCE: Noell Consulting Group and Costar

With the return of urban markets and entitlement encumbrances lifted in Downtown Nashville, downtown rental apartment captures have increased along with intown captures. That said, downtown has captured the most in terms of absolute units in the last two years and it's capture while it's relative capture has climbed the intown core has accelerated with it causing it's growth to seem less impressive then it

actually has been. The downtown pipeline is strong and for that reason we expect its capture to continue to climb to an average of 51.9% over the next five years and then falls off a bit to 39.1% as other convenient areas start to gain popularity and downtown land becomes increasingly scarce, driving up costs and rents.

‐2

30 5

‐1 ‐2

1

‐3 ‐4 ‐1

161

256

3 594

1,19

9

804

991

1,32

8

2,76

2

3,02

0

2,46

8

1,49

2

1,70

4

1,83

6

1,66

9

1,43

9

938

665

100%

33% 33%48%

24%

5%16% 20%

30%

50% 55% 55% 50% 50%42% 40% 35% 35%

-30%-10%

10%30%

50%70%

90%110%

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

Cap

ture

Rat

e

Abso

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nits

Historical Intown Absorption Projected Intown Absorption Downtown Capture of Metro Absorption

-2 -3

0

-2 -1

3

-1 -4 -2

161

85 1 283

288

43 160

264

835

1,51

0

1,35

7

820

852

918

701

576

328

233

-2000

200400600800

1,0001,2001,4001,600

Abso

rptio

n U

nits

Deliveries Historical Downtown Absorption Projected Absorption

2018 - 2026:1,692 Apts/Yr

2008 - 2010:139 Apts/Yr

2004 - 2007:-02 Apts/Yr

2000 - 2003:08 Apts/Yr

2011 - 2017:268 Avg. Abs.24.4% Capture

2018 - 2022:1,091 Avg. Abs.51.9% Capture

2004 - 2007:-01 Avg. Abs.

37.5% Capture

2000 - 2003:-02 Avg. Abs.

-21.9% Capture

2011 - 2017:1,097 Apts/Yr

2008 - 2010:81 Avg. Abs.

58.7% Capture

2018 - 2022:2,104 Apts/Yr

2023 - 2026:1,178 Apts/Yr

2023 - 2026:459 Avg. Abs.39.0% Capture

2018 - 2026:811 Avg. Abs.47.9% Capture

Downtown Nashville Capture12/5/201829


Exhibit 29 (Page 1 of 2)Downtown Apartment Supply and Demand Analysis

'00-'17 11-'17 2023 - 2026Average Average 2017 2018 2019 2020 2021 2022 Average

Employment Growth in the Metro 13,946 30,752 28,549 27,451 22,432 8,632 12,348 22,663 11,743Projected Jobs to New Apt. Absorption In Metro 11.7 10.2 20.8 22.0 22.0 36.0 30.0 18.0 23.2Est. Supportable New Apt Absorption in Metro 1,631 3,150 5,929 6,039 4,935 3,107 3,704 4,079 2,723

Downtown Capture of Metro 7% 8% 14% 25.0% 27.5% 26.4% 23.0% 22.5% 16.9%Est. Supportable New Apt Absorption Downtown 117 268 835 1,510 1,357 820 852 918 459

Downtown BID Submarkets

1/ Employment growth from Moody's/Economy.com2/ Noell Consulting Group analysis based on larger analysis and trends of the market.3/ The Downtown Nashville submarket is shown above.

SOURCE: Noell Consulting Group, CoStar

FORECAST

Apartment Demand12/5/201830


Exhibit 29 (Page 2 of 2)Downtown Apartment Supply and Demand Analysis

2009 2018 2019 2020 2021 2022 TotalDowntown Core Annual Absorption Forecast (2018 - 2022): 1,510 1,357 820 852 918 5,457

NOTES: 5 Year Pipeline TotalDowntown505 (Giarratana) 0.75 206Gossett on Church (Pollack Shores) 0.75 180Studio 154 Lofts (Howard & Manis Enterprises) 0.25 98Fifth + Broadway (Oliver McMillan) 1.00 0.50 380Nashville Yards (AEG) 1.00 0.25 344

Gulch Broadstone South Gulch (Alliance Residential) 0.50 109Solis North Gulch (Terwilliger Pappas) 0.75 227Capitol View I (Northwood Ravin) 0.25 1.00 378Crescendo Apartments (Highpoint Division Partners) 0.25 0.50 210805 Lea Ave (Brian Gibbs Property Management) 0.75 0.50 375Germantown 909 Flats (Lincoln Property Company) 0.50 158Broadstone Stockyard (Spectrum Residential) 1.00 310The Derby (Ward Development) 0.75 0.25 285The Derby Ph II (Ward Development) 0.50 115SoBro River House Apartments (SWH Residential Partners, 0.75 191Olmsted Sobor (Cocke Finkelstein/Carlyle) 0.75 220LC SoBro (Lifestyle Property Management) 0.25 0.25 168Sixth South (Beach Development) 0.25 0.75 297

2009 2018 2019 2020 2021 2022 TotalDowntown Core Annual Absorption Forecast: 1,510 1,357 820 852 918 5,457

Longer-Term Demand Forecast (2023 - 2026) 1,838Total Demand Potential, 2018 - 2026 7,295

Total, Projects Known, 2017 - 2022 7.0 3.3 7.0 1.7 0.5 3,296

Potential Over/Under-Supply 3,999

SOURCE: Noell Consulting Group, CoStar

1. The numbers indicate the percentage of the year that the projects are expected to be in lease-up. Unit counts are market rate only (where # of affordable units are known).

2. Projects that are currently under construction are designated in GREEN.

3. There are currently 1,402 units under construction in the Downtown submarket.

4. There are an additional 1,894 units planned in the Downtown submarket, bringing the total pipeline to 3,780 units delivering from 2018 on.

5. Incorporating longer-term demand (2023 - 2026) we estimate a total demand potential for 5,523 rental apartment units - 2,227 more than the current pipeline provides for.

Apartment Demand12/5/201831


Exhibit 30Demand for New Luxury Condominiums in Downtown Nashville

Age Cohort 25 to 34 35 to 44 45 to 54 55 to 64 65 to 74 Total NOTES

Total Household Growth, 2018 - 2023 -299 820 502 68 732 1,823 From Environics, 2018 - 2023% Earning More than $50,000 60.9% 66.0% 54.9% 41.1% 46.9% 55.2% From Environics, 2018 - 2023Age/Income New Households -182 541 276 28 343 1,006Owner Propensity 27.0% 27.0% 27.0% 27.0% 27.0% 27.0% Based on the US Census for Intown NashvilleNew Owners -49 146 74 8 93 272Preference for Condo 60.1% 60.1% 60.1% 60.1% 60.1% 60.1% Based on the US Census for Intown NashvillePotential New Condo Demand from HH Growth -30 88 45 5 56 163New Office Workers Downtown 24.0% 25.6% 25.6% 18.6% 6.2% 100.0% From NCG Office Demand for DowntownNew Downtown Office Workers 3,606 3,847 3,847 2,795 932 15,027 From NCG Office Demand for DowntownDowntown Workers Living in Intown 14.9% 14.9% 14.9% 14.9% 14.9% 14.9% From US Census OnTheMapPotential Office Workers Living Intown 536 571 571 415 138 2,232Owner Preference 145 154 154 112 37 603 From the US CensusCondo Preference 87 93 93 67 22 362 From the US Census

Intown Owners, 55 - 74 1,770 941 2,711 From the US Census% Earning $50,000 or More Annually 67.0% 67.0%Owners Over $50,000 Annual Income 1,186 630 1,816Moving Annually 6.3% 6.3% From the US Census% Remaining Owners 80.0% 80.0% From the US CensusRemaining Owners 60 32 91 From the US Census% Staying Local 50% 50% 50% From the US CensusOwner Movers Staying Local 30 16 46Preference for Condo 60.1% 60.1% Based on local home sales trendsCondo Buyers 18 10 275-Year Estimate 89 48 137Intown Renters, 25 - 54 6,724 2,604 3,126 12,454% Earning $50,000 or More Annually 32.5% 32.5% 32.5% From the US CensusRenters Above $50,000 Income 2,185 846 1,016 4,048Moving Annually 39% 39% 39% From the US CensusBecoming Owners 12% 12% 12% From the US CensusRenters Transitioning to Home Ownership 103 40 48 190% Staying Local 53% 53% 53%Renters Buying and Staying Local 54 21 25 101Preference for Condos 60.1% 60.1% 60.1%Renters Buying Condos 33 13 15 605-Year Estimate 163 63 76 302TOTAL--ALL SOURCES 221 244 213 161 126 965Preference for New 50% 50% 50% 50% 50%5-Year Demand, New Condos 110 122 107 81 63 482TOTAL DEMAND, NEW CONDOS IN FIVE YEARS 110 122 107 81 63 482IN EIGHT YEARS 772Factoring in Demand from Other Sources @ 25% 1,029Downtown Capture @ 75% 772

SOURCE: Noell Consulting Group

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NCG estimated demand for for‐sale condominiums from four key sources: household growth occurring in intown

Nashville, office employees being added to the Downtown area in the coming 5 ‐ 8 years,

move‐down mature homeowners, and renters moving up into condo positions in the

market. Overall NCG estimates demand potential for around 772 net new units

between 2018 and 2026, or 96 units per year.

Condo Dmd Analysis‐ Act12/5/201832

Documents

Nashville Office & Residential Demand Analysis 11-26-18...Dec 05, 2018 · DEMAND ANALYSIS Exhibit 2 The Importance of Millennials CHANGE IN POPULATION, 2017-2027 Source:NOELL CONSULTING