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With Employment, Migration Trends at Odds, Does Milwaukee Have the Tools to Crank Up the Apartment Market?

With Employment, Migration Trends at Odds, Does Milwaukee Have the Tools to Crank Up the Apartment Market?

Milwaukee is home to several iconic brands. Even if Harley-Davidson recently announced the layoff of 225 employees, other area stalwarts have picked up the slack, illustrating the dynamic nature and industry exposure of the metro’s employers. Milwaukee Tool is working towards a $33 million expansion project expected to provide 600 new jobs over the next five years. The skyline of the city is transforming, with the $450 million Northwestern Mutual building continuing its race towards completion, accompanied by the adjacent $100 million apartment and parking structure. The NBA’s Milwaukee Bucks are even getting a new stadium that will be surrounded by a new entertainment district.

Economic indicators for the metro tend to be moving in a favorable direction as well. Home sales jumped 9.1% year-over-year in October, according to the Greater Milwaukee Association of Realtors. Home sales in the region are being constrained by lack of supply, however, as inventory was down nearly 8% for the year.

Milwaukee Economy Data

Economic performance in metro Milwaukee has generally lagged the broader national figures, and the area even saw two periods of slight contraction in 2015. This fact is surprising when we look to the great deal of structural change the metro has witnessed in its labor market since 2000.

Milwaukee Employment Data

Like many other metros in the region, Milwaukee has seen a dramatic shift away from manufacturing and a heavy pivot to the education and health services segment. However, Milwaukee didn’t pick up quite as many professional and business services jobs as places like Pittsburgh.

Milwaukee Bankruptcy Data

Milwaukee’s consumer and business economic health ranks among one of the few metros where bankruptcies never quite returned to their pre-recession norms. Given the current environment, where most metros have returned to pre-recession levels or set new lows, Milwaukee does not appear poised to capture the same level of health in this regard.

Milwaukee Market Research

The number of jobs added in the Milwaukee area tends to rely on boosts from the services sector, although goods-producing (which includes manufacturing) jobs have still driven total employment gains in recent history. Government jobs are the most consistent drag on local area employment. The most recently completed quarter was the first total nonfarm employment contraction in the region since 4th quarter 2011. In between these two lulls, however, quarterly employment gains had averaged around 2,700 jobs, on net.

Milwaukee Net Migration

The metro’s migration patterns, however, have not followed the favorable trends of the area’s employment. The only glimpse of net positive migration seen in Milwaukee occurred in the depths of the Great Financial Crisis, puzzlingly, when several sectors were losing jobs at strong rates. This negative net migration teamed with generally consistent employment growth did, however, help drop Milwaukee’s unemployment rate from the more than 9% observed in the last recession to its current reading of 4.5% in 3rd quarter 2016.

Multifamily Permits

Another anomaly in the Milwaukee market is the heavy multifamily permitting that doesn’t seem to be reflected in project starts. When considering how the ratio of starts to permits compares in Milwaukee, we can revisit other Rust Belt metros. In Pittsburgh and Cleveland, more than 80% of permits from 2013 through 2nd quarter 2016 were reflected in starts. In Milwaukee this same ratio falls nearer to 70%, in line with Grand Rapids. Permits have averaged around the 1,850-unit mark in Milwaukee over the last six quarters, a modest step down from the 2,000-unit average from 1st quarter 2000 to 2nd quarter 2008. But what has this meant for Milwaukee’s apartment market?

Milwaukee Apartment Demand

Demand has been solidly outpacing supply in Milwaukee since late 2014, despite a general upward trend in deliveries. The metro has enjoyed some of the tightest occupancy in the country, and hasn’t registered less than 97% since 2014. Permitting activity shows that development should continue along the same clip in the coming year, a rate that has been easily absorbed by the market to this point. It should be noted, however, that Class A units have not lead annual rent growth in the area since mid-2015 and even turned negative in 3rd quarter 2016. This might be an early indicator that the market could face a greater challenge in absorbing coming inventory.

Milwaukee’s biggest challenge remains in attracting net migration to sustain economic growth in the future. Even though a shrinking labor force teamed with employment growth forces local unemployment rates down, this dynamic eventually leads to a talent shortage. Milwaukee is a well-educated city with a low cost of living, a combination which will remain attractive for employers, provided there are job-seekers to select from.

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