Downtown Madison Apartment Vacancy Rate Reaches 4.22%
Published on November 23rd, 2016
By Jennifer Oppriecht
In the third quarter of 2016, downtown Madison’s apartment vacancy rate has reached 4.22%. New apartment construction has led to the increase, resulting in a flood of new benefits to the downtown — and challenges.
One glance at Madison’s skyline and you can see the city is changing. Apartments are springing up left and right, and if it weren’t the city’s height restrictions on buildings, the sky would literally be the limit on how high some new structures would reach.
As detailed in Downtown Madison Inc.’s State of the Downtown Madison 2016 Report, new building growth is affecting the apartment vacancy rate. We talked to Susan Schmitz of Downtown Madison Inc. on what this means for Madison.
What is an apartment vacancy rate?
Apartment vacancy rate is defined by our good friends at Investopedia.com as:
“The vacancy rate is the percentage of all available units in a rental property, such as a hotel or apartment complex, that are vacant or unoccupied at a particular time. It is the opposite of the occupancy rate, which is the percentage of units in a rental property that are occupied.”
What is Madison’s apartment vacancy rate?
The State of Downtown report shows an interesting post-recession trend in vacancy rates for the downtown Madison zip code (53703). After declining for several years, vacancy rates made a turnaround in 2013.
The report, released several weeks ago, pulls from MG&E data. Data for the third quarter has been subsequently released for Q3, and the rate has actually increased to 4.22%.
That number is higher than the 3.46% Q3 rate for Madison area as a whole. (Note far left-hand column.)
Is the rental vacancy rate too high or too low?
That’s a matter of perspective. As we noted in our 2015 post, “a “healthy” apartment vacancy rate for a city is generally considered to 5%. Madison historically has been in the 2-3% range.”
Why is that healthy? As noted by the Isthmus:
“According to (a market rent report from the city of Madison’s Housing Strategy Committee), the typical rule of thumb is that a vacancy rate of 5% is ideal for maintaining stable pricing and housing options. When the occupancy rate gets too high, landlords control the market; if it’s too low, the renters do.”
Our opinion has always been that more competition is good for everyone. It helps keep rents in line, and it provides Madison renters with a quality product. Steve Brown Apartments has always been built on quality – high vacancy rates or low vacancy rates.
What’s fueling the rising vacancy rate?
Look up. Look around. The number of new apartments in the city has been steadily increasing.
According to the State of Downtown report, apartments units have increased 26% from 2011, with 1,349 new residential units added to the downtown in 2015.
Apartments definitely make up the lion’s share of downtown housing. Check out the pie-charts from DMI that show the breakout of residential units.
What has the boom in apartments meant for downtown?
The boom has definitely been good for downtown Madison, according to Susan Schmitz. “It’s been fabulous for retail, restaurants, shopping,” she said. “Our streets are full of people.”
Logically, the more people you have in the downtown area, the more opportunities you have for services and businesses. Those increased opportunities are ideal for young professionals or empty nesters.
“People want to be able to walk to amenities.” Schmitz said.
More housing opportunities, more transit, more families needed
With the economic boom and all the new downtown opportunities, Schmitz said there are a few challenges that need to be addressed.
1.More families: Many families leave downtown for the suburbs. To keep young families downtown, Schmitz said we need more 2-3 bedroom apartments, and perhaps an increase in condos. There are also need to be more family-friendly amenities, such as parks, as well as schooling options.
2.More transit: With so many downtown attractions, people are excited to drive downtown to take advantage of them. However, as Schmitz notes, “They all can’t come one person per car.” The city needs to find ways to provide more modes of transportation downtown.
3.More affordable housing: With so many new service-related jobs, the city has to find ways to provide housing in the downtown area so people can get to the opportunities. Transit would help, but so would housing with rents lower than what we’re seeing in the luxury-style apartments.
Developing right: Building from the inside-out
While there are challenges, the positive aspect of the downtown development is that we’re developing “from the inside-out,” as Schmitz describes it.
The most dense area is around the outer ring of the square, followed by the university. As that area can no longer build “up” (remember our height restrictions because of the State Capitol), the development slowly expands out.
Schmitz notes that’s leading to exciting new developments in adjacent areas, such as Capitol East and Monona Bay. These areas already have established neighborhoods, which is extremely attractive for new renters.
Why rent in Madison? It’s beautiful.
The increased vacancy rates obviously mean more rental units in the downtown. That’s something people should consider when making a housing choice in Madison.
When we asked why a prospective renter should consider the downtown area, her response was simple, “It’s beautiful.”
That beauty takes many forms. Two accessible lakes. Outdoor recreation opportunities. A thriving arts scene, anchored by the beautiful Overture Center. New entertainment and restaurant options added seemingly everyday.
Susan is right: Madison has much to offer, and not just in terms of housing options. The key will be meeting the challenges that inevitably accompany all these new opportunities. We’ll be monitoring the community’s efforts in this realm – subscribe to the Smarter Renter blog and you can too.