Twin Cities rental market did better in third quarter

The Twin Cities residential rental market grew healthier in the third quarter, with the average vacancy rate down and average rent up.

By Jim Buchta, Star Tribune

Last update: October 24, 2007 - 8:13 PM

While the housing market struggles with too much inventory and declining prices, the residential rental market in the Twin Cities metro area is showing strong signs of improvement, according to a report issued Wednesday by GVA Marquette Advisors in Minneapolis.

In the third quarter, the rental vacancy rate in the 13-county metro area dropped to 3.6 percent from 3.9 percent in the second quarter and was well below the 4 percent posted last year at this time.

Growing demand for rentals is putting upward pressure on prices. Average market rent in the third quarter was $890, up 2.7 percent from a year ago.

"By and large, our rental market is healthy," said Brent Wittenberg, GVA's vice president.

The rental market got its groove back as home sales slowed, foreclosure rates rose and mortgage interest rates edged up from all-time lows.

Just four years ago, the average metro-area vacancy rate was 7 percent and rent averaged $845, but those indicators started heading in opposite directions as prospective buyers began dropping out of the housing market and foreclosure victims went in search of rental housing.

Some have speculated that the increase in foreclosures and a slowdown in sales of condominiums and single-family houses would flood the market with additional units that are being rented rather than sold. Wittenberg pooh-poohs that idea, saying there's little evidence of that even in downtown Minneapolis, where the rental vacancy rate was 3.6 percent, up 0.5 percent from the same time last year, and the average rent price rose 0.7 percent to $1,100. The survey includes 4,307 units in downtown, most of them in larger buildings.

In downtown St. Paul, the average vacancy rate rose 1.4 percentage points to 6.8 percent, but rents also rose, by 3.6 percent, to an average of $1,066.

One major uncertainty in the rental market is how quickly it'll absorb 470 new units that arrived in the past three to six months, and several high-end rental projects -- mostly in Minneapolis and close-in suburbs -- scheduled in the coming year.

"Job growth isn't what we'd like it be," Wittenberg said. "But anecdotally there's some demand for this product, it's just hard to gauge at this point."

Jim Buchta • 612-673-7376

Jim Buchta • jbuchta@startribune.com

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HELP FINDING AFFORDABLE HOMES - • The Greater Metropolitan Housing Corp. (GMHC) buys foreclosed homes in the Twin Cities metro area, fixes them up and sells them to qualified buyers who meet income requirements. City and state housing programs also offer down-payment and closing-cost financial assistance to help prospective buyers finance the GMHC homes. You can view current listings on the GMHC website at www.gmhchousing.org/programs/single_family_sales.htm. Click on "Minneapolis Initiative Re-construction Program." For information, call Stephanie Gruver at 612-339-0601, ext. 18. More