Reports throughout the first and second quarters of 2024 have found that Milwaukee is one of the nation’s most competitive apartment rental markets, has some of the fastest-rising rents and is one of the worst cities for renters in the country.
Multiple luxury apartment towers have gone up downtown recently while some low-income tenants regularly struggle with landlords and housing affordability, putting a lot of eyes on the city’s multifamily market.
While the methodologies of these reports vary, local real estate experts agree that a myriad of local and national trends suggest the metro Milwaukee apartment market could get even tighter and more expensive in the coming months.
Rent growth in metro Milwaukee currently stands at 2.4% year-over-year, according to CoStar, which tracks 110,000 apartment units in the metro area. That puts Milwaukee at 19th out of the largest 50 markets in the country. Earlier this year, Rent.com reported metro Milwaukee’s rent growth at 6.3%, 10th highest in the nation and, this month, Zillow Group reported rent growth at 5.7%, the fifth highest in the nation.
“Rents are typically always rising, but rents are rising at a pace that this market is not accustomed to,” explained Gard Pecor, a senior market analyst with CoStar.
Before the pandemic, apartment rent growth in the area tracked pretty well with inflation at about 1.5% to 2%, followed by a period of aggressive rent hikes starting in 2021. Since then, rent growth in the area has been decelerating – still rising but at a slower pace – and bottomed out late last year. Now, analysts are expecting Milwaukee and many other markets to enter a “higher for longer” period of about 3% to 4% rent growth for the next few years.
In dollars, that means that the average rent in, say, downtown Milwaukee, which is about $1,900 per month, is 2.4% more expensive now than this time last year – an equivalent of about $45. A 4% increase from there would be about $76 for a total of around $1,976 per month.
This is in part because rent growth follows vacancies and supply and demand curves pretty closely.
Several reports rank Milwaukee’s rental market as one of the tightest in the nation. According to CoStar data, Milwaukee is currently the third tightest in the nation, at 4.4% vacancy.
“When you have such a low-vacancy environment and the pipeline of new inventory slows up, renter mobility is restricted,” Pecor said. “When renters have fewer options, the competition for available units is heightened and property owners have more room to raise rents. It’s supply and demand 101.”
However, rent growth isn’t being seen evenly across asset classes. For instance, four- and five-star properties, which include the newer, nicer properties like The Couture or Ascent downtown are seeing the least amount of rent growth at around 0.8% year-over-year, compared to one- and two-star and three-star properties at 3% and 2.6%, respectively, according to Pecor.
“There is definitely a risk that the affordability of our market comes into question, particularly for low-income workers.”
— Gard Pecor, senior market analyst, CoStar
That’s primarily because there’s been the most inventory expansion in the luxury asset class recently. In 2023, which was a record year for multifamily deliveries overall in the area, rents across all asset classes began to decelerate.
Beyond a low vacancy rate, property owners and managers also cite operating costs as a contributing factor to rents. The two biggest are property taxes and labor costs, which also includes the cost of benefits, according to Mike Testa, business development manager at Milwaukee-based commercial real estate firm Ogden. Property insurance is a slightly lower expense but has had significant increases with some of Ogden’s properties seeing up to a 150% increase, Testa said.
“Just because rent’s going up 10 to 12 cents a square foot doesn’t mean we’re making an extra 10 to 12 cents a square foot,” Testa said. “In today’s environment it’s not the easiest to keep cash flow positive and where investors expect it to be, but we’re getting by and we’re figuring it out because that’s our job.”
Despite the increases in rent, Milwaukee-based Mandel Group, which develops, owns and manages multifamily properties around the region, is not seeing significant increases in revenue.
According to Bob Monnat, a senior partner at Mandel, the company generally forecasts around 3% annual compounded growth of revenue, which is the level of rental growth needed to offset the growth in operating expenses and provide a competitive return for investors. Monnat said that while some properties over- or under-achieve, the compounded annual growth rate from 2020 to 2024 was 3.12%.
“In other words, when you average over the entire period in which COVID was a major player in household economics, the average growth rate in rental revenue collected at the property level was near normal,” he said.
In the coming year, Mandel is forecasting rents on existing inventory to remain essentially flat for new leases and a modest increase in renewal rates, according to Monnat.
With construction projects more difficult to get off the ground these days amid heightened construction costs, elevated interest rates and limited access to capital, developers and analysts predict slowing construction in the near term. This is coupled with a tight single-family home market keeping many people, primarily millennials, renting apartments for longer and Generation Z becoming the fastest-growing renter demographic, which will increase demand further, according to Monnat.
“There is definitely a risk that the affordability of our market comes into question, particularly for low-income workers,” Pecor said. “And it shouldn’t just be incumbent on housing advocacy groups and affordable housing developers to bang the drum on the issue. This is such an important issue for our regional economy. Any time a restaurant owner or a factory owner is in the news talking about hiring difficulties, we should be asking ourselves if there is enough housing in that area that is affordable enough to allow people to work those jobs.”
“When a renter is unable to find an apartment that is both affordable and available to them, they’ll look elsewhere,” Pecor said. “On a macro level, Milwaukee doesn’t have these affordability issues – yet. We’re not losing population to say, Des Moines, because we’ve become too unaffordable as a market. In fact, our outmigration patterns actually show we often lose people to more expensive markets like Chicago and Minneapolis because of their job markets.”
On a micro level, however, places that have seen a considerable boost in housing supply have also seen an increase in population, such as downtown Milwaukee which has had a 23% increase in population since 2000.
The trend bleeds into other sectors of real estate too, according to Pecor. For instance, eastern Waukesha County has one of the tightest vacancy rates in the market at 2.7% and rent growth at 4.5% year-over-year, close to twice the market average.
“A lot of the employer migration we’ve seen from the suburbs to the urban core in recent years mirrors renter trends, and they’re chasing that younger talent that has concentrated in the urban core,” Pecor said.
