Last week we reported that the number of permits issued to build apartments during July were dismal — total units permitted during the month plummeted nearly 50 percent compared with last year, according to a monthly report from Housing First Minnesota.
That report doesn’t match several recent headlines — summer has been no slouch for new projects. During the past few weeks developers have announced plans to build several significant apartment projects, including a high-rise apartment building pitched last week by the Wilf family, owners of the Vikings. That 17-story complex would have 201 units, and it’s just a block from where Sherman Associates recently said it would like to build a 22-story tower with 250 apartments.
That’s in addition to a long list of projects that are moving through the entitlement process, including a pair of towers near Bde Maka Ska that are part of a development that will eventually have more than 750 units. And construction is already underway on thousands of units throughout the metro.
Sound like mixed signals? Indeed, there’s growing concern about the depth of the rental market in certain areas, but a new report said that demand is proving to be “strong and sustainable” with some projects in high-demand areas experiencing strong leasing momentum.
Compass, a national firm that tracks commercial and residential leasing activity across the country, said that despite a steady pipeline of new projects that have been delivered throughout the Twin Cities metro over the past five years, the average vacancy rate across the metro dipped 20 basis points in first quarter to 2.2 percent.
When factoring in new projects that are still in the lease-up phase, the average vacancy rate was hovering at an exceptionally low 2.8 percent. Experts attribute strong demand for rentals in the Twin Cities to a robust local economy, job and population growth, a shortage of for-sale homes, and a growing number of millennials and Empty Nesters who are renting by choice.
Compass said that by the end of the year a record 5,500-plus apartment units could get built. That’s on top of the 18,500 units that were delivered from 2013 through 2017.
It won’t be a painless transition as those units are absorbed. The report said that vacancies will increase in the short term as the market works to absorb this latest wave of new units. Concessions, or inducements to rent, are also likely to pop up in submarkets where there’s a concentration of new buildings that open at the same time, flooding the market with new units.
In downtown Minneapolis alone, an estimated 1,400 units will open this year, which is more than double the number of units that came to market in 2016 and 2017 combined.