Rent growth hasn’t been as strong. But does that mean the Midwest multifamily market is heading for a slowdown?
Not necessarily. And certainly not in all Midwest markets.
Take Louisville as an example. Craig Collins, senior director with Louisville-based Cushman & Wakefield Commercial Kentucky, said that the occupancy levels for his market’s multifamily properties have been ranging from 95 percent to 96 percent for the last several years. That’s a strong number, and it’s showing no signs of dipping.
At the same time, while some markets are seeing more sluggish growth in apartment rents, this isn’t the case in Louisville. Collins said that his market has seen 3 percent to 6 percent annual rent growth during the last five to six years. Again, that number, too, is impressive.
“The Louisville market has been strong for the last six or seven years,” Collins said. “Today, we are seeing a lot of out-of-state developers who want to develop new products here. You’ll find high occupancy throughout all classes and all submarkets.”
The message is clear then: The multifamily market is still a strong one in many Midwest markets. And developers continue to add new product, especially to those markets where the demand for modern apartment space is outpacing the supply.
Louisville, again, is a good example. The unemployment rate in the city and its suburbs continues to fall. This attracts more people. Many of these people are younger, and prefer renting to owning a home.
This, of course, attracts developers wanting to tap into this market.
The Residences at Omni is an example of a newer apartment project in the city. Located at 200 W. Liberty St. in Louisville’s CBD, the project offers luxury apartment units at rents that Collins says average $2.71 a square foot.
Collins said that these apartment rents are a high-water mark for the state of Kentucky.
“Louisville has been slow to deliver market-rate housing in the CBD,” Collins said. “But absorption is going well at the Omni. A lot of people are looking at that and are encouraged by the amount of rent growth in Louisville. That could be a sign of things to come.”
The Omni certainly won’t be the last modern apartment community delivered in Louisville in the near future. Edwards Communities Development Company is now developing The Baxter, a mixed-use development that will bring more than 30,000 square feet of first-floor retail and 260 apartments to the Louisville neighborhoods of Phoenix Hill and The Highlands.
And Poe Companies earlier this year started construction of the third phase of RiverPark Place at 1500 River Shore Drive. This 107-unit apartment building will be delivered in early 2019.
“There is a lot of new apartment product coming to downtown Louisville,” Collins said. “Louisville developers want to take advantage of what other cities have seen in their downtown market-rate multifamily market.”
What is behind the staying power of the multifamily market across the Midwest? Collins points to changes in the housing market. Millennial buyers are purchasing single-family homes, but they’re doing it later in life. At the same time, older homeowners are moving out of their large single-family homes and renting apartments in urban environments.
“Multifamily has been enjoying its day in the sun for the last five to seven years,” Collins said. “Those two dynamics are playing the biggest role, Millennials staying in rental communities longer and seniors going to a more active lifestyle in the rental housing market.”