Savvy real estate players know that cities experiencing population growth are the ones worth betting money on. Notorious for its business-friendly climate, relatively high wages and lower costs of living, the Twin Cities are Minnesota’s main economic driver. According to the Greater Minneapolis-St. Paul Regional Economic Development Partnership, the metro’s labor force has increased by 4.6 percent over the last five years, 50 basis points above the national rate. This has attracted residents from St. Cloud or Duluth, Minn., or even Chicago, further enhancing rental demand throughout the market.
Deliveries reached the cycle peak in 2018, when more than 6,700 units were completed, according to Yardi Matrix data. After completing two apartment projects in Minneapolis’ North Loop, Opus Development—part of The Opus Group—started construction work on its third community in the same neighborhood. In an interview with Multi-Housing News, Vice President & General Manager Matt Rauenhorst, along with Director Nick Murnane, analyzed the state of the multifamily market in the Twin Cities and shared their predictions for the next couple of years.
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How would you describe the Twin Cities multifamily market in 2019?
Rauenhorst: The Twin Cities multifamily market remains strong in 2019. A very strong spring leasing season has the new deliveries leasing well and existing buildings are pushing rents in nearly every submarket. Construction activity continues in the strongest urban and suburban markets, where rents can support the cost of new construction.
What is driving multifamily demand in the metro?
Rauenhorst: Simply put, job growth. Coming out of 2010, the Twin Cities’ economy and job growth outpaced the national average. The strong and growing economy of the Twin Cities continues to be driving demand for additional multifamily units. With unemployment rates of 2.8 percent, employers are finding it challenging to fill open positions and need to look outside the Twin Cities to attract talent. As an organization, we are looking at employment trends and population data to better understand future multifamily demand.
What are the greatest challenges you come across when developing new multifamily projects in the Twin Cities?
Rauenhorst: While demand remains strong, there are headwinds for developers. The market has seen rent growth, but it has not kept pace with construction cost increases. There are many reasons why construction cost increases have outpaced rent growth for a number of years, but the result is significantly fewer sites that will support new multifamily development. There are very limited submarkets with demand and corresponding rents to offset the higher costs.
Which areas of the metro perform better in terms of new development and why?
Murnane: Developers have found success in both suburban and urban markets. Our team has primarily focused on the downtown and very near downtown submarkets that provide a live-work-play environment. These sites meet the needs of young professionals and empty nesters moving out of the suburban home and back to the city. We see this trend continuing and are looking at additional developments in the downtown core and adjacent submarkets.
How is your latest development in the Twin Cities progressing?
Murnane: River Loop Apartments in the North Loop is progressing very well. We started construction in the late fall of 2018 and look forward to welcoming residents in the early summer of 2020. This is the first multifamily project with immediate adjacency to the west bank of the Mississippi River in Minneapolis. The location within the vibrant North Loop neighborhood, coupled with the spacious site and vicinity to the river, create a very unique offering.
How do you expect the Twin Cities multifamily market to evolve in the next two years?
Murnane: We see some slowing in the number of projects starting construction in the next two years. Given the strength in demand and moderate slowing in supply, we believe the market will continue to see rent growth. The projects that are most successful will be located in neighborhoods that offer residents close proximity to the amenities they look for. These amenities include restaurants, entertainment, transit and employment.