Apartment vacancy rate rising

Many new units opening within short time frame

The Milwaukee area apartment market’s vacancy rate is rising because the large number of new units is outstripping demand, according to one development executive.

The area vacancy rate is 7% and will likely increase to around 7.5% to 8% by the end of 2018 before decreasing, said Richard Aaronson, Atlantic Realty Partners chief executive officer.

Aaronson made his remarks during a Thursday presentation at the annual real estate forecast sponsored by Institute of Real Estate Management’s Milwaukee chapter. The event attracted around 300 people to the Italian Community Center.

Around 2,400 new apartments opened in the Milwaukee area in 2017, Aaronson said. Another 3,300 units will open in 2018, which is likely an all-time high, he said.

With so many new apartments opening within a relatively short time frame, supply is outpacing demand, he said.

“Absorption is going to need to catch up,” said Aaronson.

Aaronson’s firm last summer opened the first phase of River House, an apartment development with 243 units at 1781 N. Water St. He said construction of the second phase, with around 200 units, might begin this year.

Atlantic Realty, which is based in Atlanta, last year also opened The Reserve at Mayfair, with 236 units, at 11011 W. North Ave., Wauwatosa. The firm last fall started construction on the 194-unit The Reserve at Brookfield, 13701 W. Blue Mound Road, Brookfield, which will open in late 2018.

Long-term trends remain strong for the apartment industry, Aaronson said,

with a continued tendency for people to rent instead of owning their homes. The newly approved changes to the federal tax code will encourage that trend by limiting the deductions for property taxes, he said.

Aaronson also said there will likely be a shift to more new construction in the suburbs “due to overbuilding” in urban areas. He also expects more development in certain niches, including apartments that target college students.

Challenges include rising construction costs.

Also, the Milwaukee area continues to see modest job growth, he said, which affects demand for new apartments.

The number of jobs in the Milwaukee area increased 0.7% from November 2016 through November 2017, he said.

In the Minneapolis area, the number of jobs increased by 2.1% during that same period.