An apartment building under construction stands in the Gulch neighborhood of Nashville, Tennessee, on Feb. 8, 2014. Photographer: Luke Sharrett/Bloomberg

Annie Ierardi works from home in a Nashville, Tennessee, building that’s adding apartments as waves of young workers flock to a city flush with jobs, music and ambition. Amid noise and disruption, she can’t imagine leaving.

“I love it here,” Ierardi, 25, said in a telephone interview, talking over the racket of construction on the floor above. “There are so many different neighborhoods so close to each other, the people are friendly and you can go to a show every night. I say yes to everything.”

Commercial real estate investors are also saying yes to Nashville, drawn by rising rents in the state capital and longtime hub of the country-music industry. Office and apartment sales in the area soared to records last year, combining for $1.7 billion in transactions and outperforming the U.S. average, according to Real Capital Analytics Inc.

“Nashville today is young and vibrant,” said Jay Turner, managing director of MarketStreet Enterprises LLC, master developer of the Gulch, a 30-acre (12-hectare) former rail yard that’s now a development of loft-style apartments, shops and restaurants just outside of downtown. “We predicted the millennial generation wanted to live in an urban setting, and went way out on the risk curve to make that bet.”

Last year, Nashville office deals rose 50 percent and apartments gained 35 percent, compared with increases across the U.S. of 22 percent and 14 percent, respectively, said Dan Fasulo, managing director of New York-based Real Capital Analytics. “Any time you outpace the national, it’s significant,” he said. “Smart money is picking off the best assets in these mid-tier cities.”

Music, Health

Nashville, birthplace of the Grand Ole Opry radio broadcasts almost 89 years ago, is booming “under the radar” with an expanding knowledge-based economy, said Jed Reagan, an analyst at research firm Green Street Advisors Inc. A cluster of health-care companies and spinoffs, related service firms and medical research at Vanderbilt University sit at the center of growth and form the “marquee industry in town,” he said.

Office vacancies in the city plunged to 10.4 percent in the fourth quarter from 12.3 percent a year earlier, among the 10 biggest declines for U.S. markets, according to CBRE Group Inc. Rents rose 1.7 percent to $20.84 a square foot and are poised for annual gains of 3.3 percent through next year amid a supply shortage, said Arthur Jones, a Boston-based economist with the brokerage.

Berkshire, Simon

Acquisitions last year were made by office buyers Shidler Group of Honolulu, Houston-based Lionstone Group and Toronto-based Sun Life Financial; apartment investors Berkshire Property Advisors of Boston and Irvine, California-based Steadfast Cos.; and retail buyers Simon Property Group Inc. of Indianapolis and Munich-based GLL Real Estate Partners, Real Capital said.

Nashville’s in-migration of young people and pro-business climate “bode well for above-average office-demand growth,” Green Street said in a Dec. 4 note on Highwoods Properties Inc. whose buying spree boosted its Nashville buildings to a value of $229 a square foot, pricier than any other market among the landlord’s holdings, including Atlanta at $180 a square foot.

Nashville was among the top three fastest-growing U.S. cities for most of 2013, Labor Department data show. Health care’s preeminence includes 220,000 jobs, a $53,000 industry wage that exceeds the $39,000 area average and decades of “wealth creation and thought leadership,” Janet Miller, chief development officer for the Nashville Area Chamber of Commerce, said in an interview at her downtown office.

Hospitality, Autos

Hospitality ranks second with 90,000 workers and automotive firms are third at 70,000, led by a Nissan North America Inc. plant that assembled its 10 millionth vehicle in October, Miller said. Bridgestone Corp. the world’s largest tire company, has its U.S. unit based downtown and naming rights to the nation’s sixth-busiest arena that hosts the Predators professional hockey team and music-award shows, according to Pollstar trade data.

The $585 million Music City Center, which opened in May with 1.2 million square feet (111,500 square meters) of meeting space and a guitar-shaped roof, moved development toward the Gulch and a site where HCA Holdings Inc. the largest for-profit hospital chain, intends to build a $200 million office complex. The project will house an HCA consulting unit and a research center named for longtime resident Sarah Cannon, better known as Minnie Pearl, the Opry’s comic rube.

Government workers housed in buildings near the 1859 state capitol; a higher-education sector that includes Middle Tennessee State University, historically black Fisk University and Belmont University, renowned for music programs; and “first-class” performance and fine-arts facilities add depth and diversity to the economy, said billionaire Thomas Frist Jr. 75, who co-founded HCA with his father in 1968 and is now a philanthropist.

‘Right Balance’

“People in Nashville have the right balance of sophistication without forgetting their roots,” Frist, whose $25 million gift helped establish the Frist Center for the Visual Arts in a former Art Deco post office, said in a telephone interview. Frist, who has a net worth of $5.7 billion, is the 248th richest person in the world, according to the Bloomberg Billionaires Index.

The city’s current buzz echoes from honky-tonks on Broadway packed with revelers enjoying live music nightly, to harmony between city and business leaders and attention from the ABC television series “Nashville,” said Jody Williams of Broadcast Music Inc. the locally based agency that collects royalties and license fees for composers and songwriters.

‘Like Paris’

“This is like Paris in the ’20s,” Williams, a BMI vice president and Nashville native, said in his office at 10 Music Square, where images of artists the firm represents, including Willie Nelson and Taylor Swift, line the walls. “All these kids who want to start their lives are choosing to come here.”

Growth may yet bring pitfalls, with lax zoning and low labor and construction costs likely to encourage speculative building, said Reagan of Green Street. Nashville needs to develop a mass-transit system with regional peers to keep pace with a growing job base, said Brian Reames, Highwoods senior vice president.

“You can look out in time and see Cool Springs growing 60 percent by 2020,” Reagan said, referring to the suburb south of downtown where developers have purchased land for potential projects. “The ease of new supply is the biggest risk.”

Tennessee residents don’t pay state income taxes and may balk at costly revenue plans necessary to improve transit and other infrastructure, said Clayton McWhorter, who saw the city prosper over three decades as an HCA executive, where he rose to become chairman.

Growth Costs

“We need to maintain growth, and at the same time we need to pay for that,” McWhorter, 80, said in a telephone interview. He retired from HCA in 1997 and then founded a venture firm focused on health-care startups.

Nashville’s good fortune can be traced to a 1963 merger of the municipality and Davidson County, which set a foundation for collaboration between civic and business leaders, according to both Frist and McWhorter. The voter-approved plan formed a single metropolitan government and stipulated that mayors be elected without party affiliation.

“We haven’t had the partisan bickering, and people pull together for the common cause,” McWhorter said. “We’ve learned what’s good for one is good for all.”

Musicians and other creative types have found their own kind of harmony in Nashville. The world-famous Opry broadcasts began on local radio station WSM in 1925, and originated for more than four decades from downtown’s Ryman Auditorium, refurbished and still known as the “Mother Church of Country Music” even with the program now beamed from the suburban Opryland USA complex.

Higher Rents

At the Gulch, developed by MarketStreet on the former rail yards, the residents are mainly young workers, said Turner, who is the nephew of Cal Turner Jr. former chairman and chief executive officer of Goodlettsville, Tennessee-based Dollar General Corp. MarketStreet’s $260 million investment has yielded average rents of $1,377, almost double what’s typical in the city.

Nashville residential rents surged to $794 in the fourth quarter, up 4.5 percent from a year earlier and the seventh-biggest jump in the U.S. ahead of Houston’s 4.4 percent increase, according to a Reis Inc. survey of 79 markets. Home values jumped 7.9 percent in December from a year earlier, ranking the market 132nd among 400 metropolitan areas for price gains, according to CoreLogic.

Tower Purchase

Highwoods in September raised the investment stakes when it bought the Pinnacle office tower for a record $153 million, or $294 a square foot, Real Capital data show. The city’s newest high-rise, which opened in 2010 and is 89 percent occupied, quotes rents of $35 a square foot, providing potential for increased revenue as rates rise, according to the Raleigh, North Carolina-based real estate investment trust.

The REIT is “actively growing its appealing footprint” with 1.4 million square feet in Brentwood and 900,000 square feet in Cool Springs, submarkets with vacancies of less than 5 percent, Green Street said. Highwoods has almost 3.4 million square feet in the Nashville area, Reames said in an interview at his office near Vanderbilt’s campus southwest of downtown.

Nashville’s health-care cluster still stands at the forefront of growth, investing in cutting-edge therapies and devising ways to make the U.S. system “more user-friendly and compassionate,” Frist said. “The opportunities to make advances are greater today than ever.”

Ierardi, who has a bachelor’s degree in journalism from the University of North Carolina at Chapel Hill, and moved to Nashville from Washington, D.C. with a sales job for a consulting firm, did “tons of research” before asking her company for the relocation. Her $1,300 monthly rent comes with use of a pool and gym as well as parking, a good deal compared with $1,250 for a Georgetown row house shared with three friends, she said.

“I was ready to live alone and knew Nashville was cool and a good fit because there are a lot of jobs, obviously,” she said. “But it’s exceeded my expectations. I feel like a freshman in college again.”