A 20-story tower that could fill the last gap at the north end of Nicollet Mall is among seven projects with more than 1,000 apartments under consideration in Minneapolis, even as the vacancy rate has risen sharply.
The tower on Nicollet would have more than 350 units and would share a block with a 30-story apartment tower the same developer, the Opus Group, put up about a year ago. That block — bounded also by S. Third and Fourth streets and Marquette Avenue — was the home of the Ritz Hotel until it was demolished nearly three decades ago.
The transformation of that stretch of the mall has been quick and profound.
Just a few years ago, several vacant blocks separated the Central Business District from expanding neighborhoods along the Mississippi riverfront. Rather than filling those gaps with offices, developers have focused on building luxury high-rise housing aimed at attracting downtown workers and downsizing baby boomers.
"It is exciting that literally the last parcel on the north end of Nicollet is in play here and likely to be developed," said Steve Cramer, president and CEO of the Minneapolis Downtown Council and Minneapolis Downtown Improvement District. "And it represents continued momentum for the downtown housing market."
When Opus announced its first apartment project on the mall, 365 Nicollet, it was unclear what would occupy the rest of the block, but the rental market has defied expectations. The seven projects the Minneapolis Planning Commission will consider this week are the most reviewed in any month this year.
Last year, developers completed 1,286 units in downtown. At the same time, construction has started to outpace demand, with the average vacancy rate in downtown Minneapolis doubling since last year to 5.2%, according to Marquette Advisors.
Brent Wittenberg, Marquette's vice president, said all eyes are on the downtown market.
"Although the absorption trend remains positive, rent growth has moderated here considerably as operators work hard to hold onto current renters or backfill vacant units in a market where renters now have several options," he wrote in his report.
Wittenberg said that across the metro, the average vacancy rate during the first three months of the year fell slightly to 2.8%, including buildings that are still in the lease-up phase.
Marcus & Millichap last week said the vacancy rate in the Twin Cities remained one of the lowest in the nation. During the first quarter, the average vacancy rate in more than half of all submarkets was below 3%.
And last month, developers in the Twin Cities were issued enough permits to build 1,307 new multifamily units, according to Housing First Minnesota. That includes LMC's plans to build 335 units in northeast Minneapolis at Odin, next to its new Nordhaus rental project.
Downtown along Nicollet Mall, the Opus apartment building would be just across from United Properties' long-anticipated RBC Gateway project, which will include a 34-story tower with offices, condominiums and a Four Seasons Hotel. A groundbreaking ceremony for that project is set for Tuesday.
Opus' latest project proposal, Nicollet 301, would have 357 to 370 apartments, 351 parking spaces and about 5,000 square feet of street-level commercial and retail space along Nicollet Mall. The Third Street side of the building would have five two-story townhome-style rentals.
Nick Murnane, Opus' director of real estate development, said the success of the company's 365 Nicollet building gives the company the confidence to proceed with rentals rather than offices for the site.
Since 365 Nicollet opened in October, the building is now 70% occupied.
"Lease-up has exceeded our expectations," he said. "Well-executed, well-located projects are continuing to see strong lease-up velocity.'
Murnane said the Nicollet 301 project will not mirror the 30-story 365 Nicollet tower, but it's unclear at this point how it will differ.
"We're intentionally not building a twin tower to 365," said Murnane. "We're working internally and with stakeholders in the neighborhood to deliver something that's different but still fits within the context of the site."
The developer hopes to begin construction this year or in early 2020.
When the planning commission's Committee of the Whole meets Thursday, it also will review six other residential projects, including a Solhem Cos. plan to build a five-story building with 175 rentals on five parcels at the corner of Broadway and Main streets in northeast Minneapolis.
The committee also will review an update on a project slated for 800 S. Washington Avenue in the Mill District. Aecom's plan calls for a 14-story mixed-use building with 127 for-sale condominiums.