Migration to the Twin Cities fueling a so-far-insatiable appetite for apartments.
A forecast issued this month by the Golden Valley-based NAI Everest commercial real estate firm reflects the continuing surge in the Twin Cities’ multifamily housing market — both in the numbers it reports, and in the fact it even exists.
NAI Everest’s first-ever multifamily forecast predicts the addition of 2,900 new apartment units and 580 student-housing units in the Twin Cities metro area in 2014 after the red-hot sector absorbed all 3,108 units delivered last year — and then some.
That kind of performance is attracting the notice of deep-pocketed investors from around the world, which is why the four-year-old firm has started an annual forecast covering the fast-moving metro multifamily market.
“Right now, I’m not aware of any other multifamily forecast that goes out about the Twin Cities, and it seemed like there was a real need for this information,” said Gina Dingman, NAI Everest’s president and founder. “We get a lot of inquiries both locally and nationally from people who want to know more about this market. They’d like an opinion about where it’s going.”
The Twin Cities area has quickly emerged as one of the top multifamily markets in the country, and the demand for knowledge about it is virtually insatiable, added Tom Dillon, NAI Everest’s senior vice president.
“We’ve launched this forecast in an effort to really help everyone understand what’s going on here,” he said. And what’s been going on will continue this year thanks to the remarkable ability of the local market to soak up thousands of apartments now being built and demand even more.
Despite all the new units that came on the market in 2013, vacancies remained below 3 percent for the 11th straight quarter and will continue to remain below 5 percent throughout this year, the outlook predicted. Rents, which took a 3.1 percent jump last year, are predicted to rise in 2014 by another 4 percent.
New apartment projects now coming online have been leasing 16 units per month on average, with 35 percent of their units pre-leased before construction began.
Leading the way is Minneapolis, where 1,985 multifamily apartment units were under construction in downtown at year-end, with 1,400 expected to be delivered in 2014. Apartment rents have soared 9.1 percent there compared with the fourth quarter of 2012, to an average of $1,402 per month.
Dingman said the Twin Cities apartment market is experiencing a perfect storm of ballooning demand created by downsizing baby boomers and young professionals flocking to the Twin Cities from around the country.
At the same time, the supply of up-to-date apartments was extremely tight after decades when the Twin Cities was among the national leaders in homeownership and residents showed little interest in apartment living.
The game of catch-up shows few signs of abating in the coming year as empty-nesters, looking to trade in their suburban homes, compete with “millennials” from across the country attracted by good-paying jobs and Minneapolis’ hipster cachet for still-scarce downtown apartments.
“One thing that surprised us while researching this outlook was just how much in-migration to the Twin Cities is fueling demand,” Dingman said.
As evidence, she pointed out that when 766 new units came onto the downtown Minneapolis market late last year, the vacancy rate there spiked to 4 percent, but in the Twin Cities as a whole, it fell to 2.5 percent.
Don Jacobson is a St. Paul-based freelance writer and former editor of the Minnesota Real Estate Journal.