Even though hundreds of new apartments have come online in the Twin Cities, they're still getting more expensive and harder to find.
The influx of hundreds of new apartments in the Twin Cities area has in no way put a lid on rent costs, and it also hasn't pushed up vacancy rates, a report released this week showed.
Throughout the region, the average vacancy rate was 2.7 percent during the second quarter, down slightly from the previous quarter, according to Marquette Advisors. Average rent during the quarter was $951, up from $935 the previous three months.
The Twin Cities rental market remains tight despite a construction boom that has brought several hundred apartments online. And developers have proposed thousands of units in the coming years to satisfy what seems to be an unyielding appetite for rental housing. The housing bust has made many would-be buyers wary of homeownership, so some are choosing to rent instead.
"The rental market is quite healthy right now," said Mary Bujold, president of Maxfield Research Group, a Minneapolis housing research firm. "Until people really gain some good confidence in the for-sale market, it's going to be this way for a while."
While the broader market has shown signs of tightening, demand isn't robust in all markets. In Minneapolis, the average vacancy rate was 1.8 percent, down from 1.9 percent during the first quarter. By contrast, the average vacancy rate in downtown St. Paul was 3.4 percent, and in several suburbs outside the seven-county metro it was much higher.
The differences are a reflection of a deep desire for housing that allows an easy commute to jobs, along with access to shopping, restaurants and other services.
That's why 937 apartments are under construction in downtown Minneapolis alone. Bujold said an additional 2,300 units have been approved and another 790 proposed. Minneapolis continues to add more housing units than any other metro community.
The Flux Apartments in Minneapolis' Uptown neighborhood are among the most recent additions. The 216-unit building opened in January and was fully leased by the end of May, about seven months ahead of schedule, said Brent Rogers, vice president at Greco Development. The company is also in the final stages of converting two historic buildings in the Minneapolis Warehouse District into high-end apartments.
Rent prices in prime parts of the city such as Uptown and the Warehouse District exceed $2 per square foot. First-ring suburbs such as St. Louis Park aren't far behind. There, several hundred units are in the works, including the Flats at West End, which is now under construction in a large retail and office development along the west border of Minneapolis.
Chris Culp, a founding partner of the the Excelsior Group, said that while rental housing dominates the construction scene in the Twin Cities, there haven't been enough new units to put a dent in demand or lower prices.
"I still think we need to get more units built," he said.
A report released this week from Marcus & Millichap said that inventory expected to come online during the last half of the year could outpace renter demand, causing the overall vacancy rate to increase to a projected 2.9 percent. Still, that's below the point at which there's a healthy balance of renters and apartments. The group also said that favorable buying conditions could turn some would-be renters into home buyers, especially in areas where house prices are the most affordable. The group said the supply of high-end rentals will increase by 1,865 units this year, half of it in Minneapolis alone.
Lisa Moe, president and CEO of Stuart Companies, said that despite all the good news, rental property owners are still making up for lost ground. During the run-up in housing prices, there was a big shift from renting to buying at a time when it was easy to qualify for a mortgage and there was an assumption that home prices would just keep climbing. She said that rents are now only 4 percent higher than they were in 2009, and that real estate taxes -- the largest expense for any property -- have increased by double-digits. The company is building apartments in New Brighton and Bloomington but has steered clear of Minneapolis, where new construction is sure to put stress on rents and vacancy rates.
"In the overall market, there are a few concessions," she said. "But I think rents are remaining strong."
Jim Buchta • 612-673-7376