Nearly 2,000 new apartments hit the market in the Twin Cities metro area so far this year, and there were plenty of renters to fill them.
The average vacancy rate in the 13-county region during the second quarter was 2.7 percent, up only slightly from 2.6 percent in the first quarter and 2.3 percent a year ago, according to new data from Marquette Advisors Wednesday.
Because most of the new units this year have been expensive luxury apartments, the average rent rose 2.6 percent to $1,004.
"Demand for apartments in the Twin Cities remains robust," said Brent Wittenberg, vice president at Marquette Advisors.
Indeed, the apartment rental boom is showing no signs of abating.
Metrowide, developers have brought 1,979 new units to market in the first half of the year, compared with 1,142 in the same period a year ago.
By the end of the year, Marquette expects nearly 5,000 units to hit the market, far above the 2,763 full-year total for 2013. Wittenberg expects the average vacancy rate to climb to 3.5 percent by the middle of next year.
"We are seeing a strong positive market response to new developments, both in Minneapolis and St. Paul, while suburban developments are also having success," Wittenberg said.
The market was weakest in downtown St. Paul, where the average vacancy rate had jumped to 6.6 percent from 2.1 percent last year.
But all eyes have been on downtown Minneapolis, where 601 new units — or 30 percent of all new apartment construction in the region — hit the market during the first half of the year. That lifted downtown's average vacancy rate to 5.7 percent from 5 percent during the previous quarter and 3 percent a year ago.
In downtown Minneapolis alone, another 1,000-plus units are expected to come online during the last half of 2014, followed by more than 800 in 2015.
In the coming months, several large luxury apartments towers will open downtown, creating a bit of concern about the depth of the market. Mary Bujold, president of Maxfield Research Group, expects the downtown vacancy rate to rise as high as 7 percent, at least temporarily.
"For many metropolitan areas that's considered to be standard, although here we usually think that is high," she said. "If rental traffic and leasing really drops off and there are many more concessions, then that could signal that we have reached an oversupply."