With Vacancy Rates Rising, High-Rise Managers Need A Hyperlocal Strategy
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In major metropolitan areas across the U.S., there is a market glut for luxury high-rise apartments. Of the 49 high-rise buildings under construction in Chicago last summer, 42 were dedicated to rental apartments. With so many new assets coming online, high-rise buildings served by elevators recorded the highest overall vacancy rate of apartment buildings nationwide for 2018, according to the Institute of Real Estate Management’s 2018 Income/Expense Analysis.
IREM reports that vacancies rose across the board for conventional apartments in 2018. But vacancy is highest for high-rise “elevator” apartments, which posted 7.1% vacancy nationwide, compared to larger low-rise apartment buildings (6.9%) and garden-style communities (6.8%)
These vacancies could soon be absorbed, as demand for high-rise luxury buildings is predicted to soar in the coming years. But without an aggressive approach to hold on to current occupants and attract new ones, building owners and managers could be spending these interim years with thousands of empty rooms as competitors’ buildings come online.
“Owners and managers can’t assume that their high-rise is going to fill up just because a similar formula worked for another building somewhere else,” IREM Senior Manager of Income/Expense Analysis and Research Matt O’Hara said. “And with so many of these buildings hitting the market in early 2019, a business-as-usual approach won’t work.”
IREM’s data shows there is no foolproof strategy when it comes to selling high-rise apartments. Chicago’s 11.1% high-rise vacancy rate ranks among the highest in the U.S., but only two hours north in Milwaukee, high-rise vacancy sits at a nationwide low of 3.1%. A state away, Minneapolis clocks in just above the national average at 7.5%.
And within cities, real estate trends fluctuate on a block-by-block basis. Lincoln Park had the lowest vacancy rate in Chicago, at 2.1%, but rents are growing more quickly a mile south in Gold Coast, according to Marcus and Millichap’s Q4 report on Chicago neighborhoods.
To market their building effectively, building owners and managers need to understand their city on a deeper level — to see trends on a hyperlocal basis, rather than a national one.
“Every building is unique: We’re seeing situations in which two buildings in the same city have wildly different vacancy rates, just based on tiny differences in location, building age or amenities,” O'Hara said. “The adage goes that all markets are local, and that’s what our data is bearing out.”
Owners and managers can’t rely on sweeping national data to appropriately calibrate rent prices, set room configurations and choose services, O’Hara said. They need the most up-to-date information to help them understand their building, including data about demand, vacancy and maintenance costs based on their neighborhood, city, geography, building age and building type.
Building managers need to arm themselves not just with more information, but the right sort of information, which delves deep into their locales. Resources like IREM’s Income/Expense Analysis can help building managers build out a marketing strategy and compare each building to its closest competitors, providing benchmarking data that ensure managers are charging the right level of rent and giving potential tenants what they actually want.
"To make good business decisions, you need good data," O'Hara said. "The larger the sample size, and the more local the information, the better. Owners and managers need vetted benchmarking data broken down to the exact specifications of their buildings, and to know their local market inside and out. To go in with a strategy that's based on national averages is like flying blind."
This feature was produced in collaboration between Bisnow Branded Content and IREM. Bisnow news staff was not involved in the production of this content.