Rents at Record Highs Prior to New Wave of Construction in Minneapolis
- Aug 02, 2012
As many continue to have reservations about entering the single-family market, apartment demand has boomed in the Minneapolis/St. Paul metro area, with the overall Q3 2012 vacancy rate coming in at 2.4 percent. As such, annual asking rent is expected to reach its highest level since 2008 at $988 per month.
According to Marcus & Millichap, construction of new multifamily inventory in the metro has remained low since 2008, when the financial crisis began to take hold. Just 477 units were completed in 2011, with even fewer completed in 2010. Obviously, with such tight supply and high demand, vacancy has dropped considerably over the last few years—from well over 5 percent in 2009 to just above 2 percent in 2011.
Yet in just the first half of 2012, 405 units were added, and Marcus & Millichap projects that Class A supply alone will spike by 1,865 units by year’s end. Construction in the Twin Cities seems to be making a comeback as 2,450 units are currently under construction with completions scheduled through 2013. Moreover, multifamily permits skyrocketed to 9,300 units this year.
Marcus & Millichap notes that a great slice of the renter population in Minneapolis now consists of young professionals who are wary of becoming homeowners but have high expectations of what their apartments should provide. As such, developers across the metro are adding higher-end amenities and features such as concierge services, cafes, outdoor gathering spaces, roof-top decks and pet-care areas, and this is a considerable factor in this year’s dramatic 1.2 percent lift in Class A supply.
Increased competition in this crucial asset class has led to a 1.1 percent uptick in rents during the first half of 2012 to $1,155 per month, considerably higher than the overall average asking price.
The submarket that saw the largest increase in rent over the last year was the downtown Minneapolis area, with average effective rents for all asset classes rising 5.3 percent to $1,075 per month. Washington County saw the smallest increase in rent—1.4 percent—to $972 per month. This area was also the only submarket in which vacancy increased—from 3.1 percent in 2011 to 3.8 percent in 2012.
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