Thousands of new rental apartments hit the market in the Twin Cities this year, but shoppers still have limited options and are facing the biggest rent increases in nearly a decade.
Since January, 5,750 apartments have become available in the metro area, but the average vacancy rate fell slightly to 2.3 percent by the end of October, according to a quarterly report from Marquette Advisors. An influx of upscale, expensive units and a dearth of rental options in some parts of the region caused the average monthly rent price during the third quarter to increase 4.6 percent to $1,053.
The report, issued late Monday, showed that variations among the metro area submarkets continue to deepen. In downtown Minneapolis, where 2,040 units have been added over the past 21 months, the average vacancy rate was 7 percent. That includes new buildings that are still in their lease-up phase.
In contrast, dozens of suburbs that have been overlooked by developers are reporting vacancy rates near zero. Among the places where are apartments are hardest to find are Apple Valley/Rosemount (with a vacancy rate of 1.6 percent), Blaine (1.7 percent) and Cottage Grove (0.08 percent).
Vacancies are highest in downtown Minneapolis, in the Uptown neighborhoods of south Minneapolis and around the University of Minnesota. In those areas, building managers are offering discounts on rent and other concessions to entice renters.
Brent Wittenberg, Marquette’s vice president, said such concessions are more typical during fall when property managers are eager to fill their buildings before the onset of winter. Concessions are more typical, he said, on newer, more expensive two-bedroom units that might otherwise appeal to young professionals.
“More affluent millennials are opting to buy a home rather than rent a two-bedroom apartment with greater frequency than they were one to two years ago,” Wittenberg said.
Mary Bujold, president of Maxfield Research and Consulting, isn’t concerned about the number of concessions that are being offered. They’re spotty, sporadic and relatively modest, she said.
“I don’t see wholesale concessions across the board,” she said. “Right now they do not bother me, but if I saw more of them in market, maybe it would.”
On Tuesday, the Twin Cities office of market research firm Marcus & Millichap, in its end-of-year report, said rents in the region posted their biggest gain in seven years. The report says demand continues to outpace supply and that recent hiring sprees by UnitedHealth Group and Amazon.com Inc. will help that demand as well as fuel investor interest in owning apartment developments in the Twin Cities.
“As long as our employment growth continues, we’ll be fine,” Bujold said. “Where we’ll see problems is if we see a slowdown in jobs.”