It doesn’t really matter that hundreds of slick, new apartments have come available. Twin Cities renters have limited choices and they’re paying more.
Developers finished more than 1,000 new units throughout the region during the first three months of the year, causing the vacancy rate to creep up to 2.7 percent, reports Minneapolis-based Marquette Advisors. Even so, apartment vacancies remain at historically low levels, and for the first time, average monthly rents across the metro broke the $1,000 threshold.
“We’ve been able to absorb the units even better than some people might have predicted. There is confidence in the market,” said Gina Dingman, president of NAI Everest, a commercial real estate brokerage.
Most of the nation’s big cities are seeing a rental housing boom that is being driven by changing demographics and a fundamental shift in attitudes toward renting, namely a desire for the flexibility a lease offers.
In the Twin Cities metro, 1,011 apartments were added to the rental pool in the first quarter, including 757 in Minneapolis and 254 in St. Paul.
With young professionals moving to the city for jobs and baby boomers doing away with their large suburban homes, developers are focusing on downtown Minneapolis, which was the most active area in the region during the quarter.
Last year, 1,246 new units came online, with another 389 hitting the market during the first quarter, causing the downtown vacancy rate to nearly double to 5 percent from 2.2 percent a year ago.
But the cost to lease those units soared given the resort-style amenities included in many new apartment developments. Average rents increased 7.3 percent to $1,398.
While there’s been growing speculation about the depth of the rental market in the Twin Cities, the region is still one of the healthiest in the nation and has attracted institutional investors. Another uptick in vacancy rates is likely in the coming months as another 1,300-plus units hit the market over the remainder of the year.
That includes LMP Apartments, a sleek high-rise building on the edge of downtown in Loring Park. That building is slated for occupancy in August, but already the developer has opened a pop-up leasing center in the IDS Crystal Court, where prospective renters can shop for floor plans.
Josh Taylor, vice president of marketing for Chicago-based Magellan Development Group, said preleasing has exceeded expectations and the mood is positive. “We still have no concerns about supply-and-demand issues,” he said. “We think there’s huge pent-up demand for downtown.”
Rents in the building range from $1,611 for a studio to $4,852 for a 2,000-square-foot penthouse, which is already spoken for.
Nic on Fifth, another upscale downtown high-rise, also is hitting the market this fall. Its developer, Opus, has opened a downtown sales center on the skyway level of the Baker Building.
So far, the North Loop and Uptown neighborhoods on the periphery of downtown have been the most active markets for developers, causing a minor glut of apartments to hit the market last year.
Brent Rogers of Greco Development said that at the Lime apartments in the heart of Uptown, renters are moving in and crews are putting the finishing touches on the landscaping. Greco has leased 100 of the 171 units, which is ahead of projections, but rental rates in the area have generally been flat.
That’s forced a handful of leasing managers to offer incentives, said Mary Bujold, president of Maxfield Research Group in Minneapolis. That’s happening mostly in new properties that developers are trying to fill up, and in older properties that must maintain occupancy levels.
The Uptown Lake apartments was offering two months of free rent with a 14-month lease. And at Lake Calhoun Flats, managers were offering a month of free rent for a 12-month lease.
“We had a long, hard winter, which affected lease-up at several buildings,” Bujold said. “In general, it is mostly just seasonal stuff, not really any significant weakness in the market.”