High Rises in the Midwest - the Absorption Cap

Posted on May 08, 2012 by Tadd Miller

Density in urban residential projects are capped by local market absorption rates. In the Midwest, absorption rates are typically 8 - 12 units monthly, although some projects in the best locations have experienced double that in the past year. In any event, annual absorption is arguably 100 - 150 units. Suburban projects deliver in 12, 24, and 36 unit increments, allowing immediate occupancy at a rate approximately equal with market absorption.

However, this equilibrium is impossible in high-rise development where units are delivered in increments of 50-100. It is unlikley that high-rise residential product will be viable for the foreseeable future in most Midwest cities. (Note for this I am considering all product that exceeds any wood frame constructibility as a high-rise). Not even considering construction costs and rents, it's just not possible to absorb 50+ units quick enough that would allow financing high-rise apartments in most Midwestern cities.

I love the idea and concept of high rise living, and I look forward to the day when my neighborhood in downtown Indianapolis reaches the point where its market is ready to accept that development approach. However, I want to be realistic on what I can accomplish, and I know that the absoption cap is something that we must remember in the design of our urban and mixed use redevelopments. Hopefully we will create such a dynamic and attractive market in downtown Indianapolis and this will change, however it is not going to happen overnight.

This entry was posted in Finance

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