Hundreds of new apartments in the Twin Cities have yet to put a dent in the demand for rentals.
The vacancy rate in the metro area continued to slide in the first quarter, falling slightly to 2.8 percent, according to Marquette Advisors. The dip in vacancies comes despite the addition of 620 new apartments — mostly in Minneapolis’ trendiest neighborhoods — and rents that have steadily crept higher in the Twin Cities.
Developers and real estate experts say the robust demand for apartments is happening as the economy improves and job prospects look more promising for area workers who like the convenience that apartment living brings. Brent Wittenberg, vice president of Marquette Advisors, noted that 7,100 jobs were added in the Twin Cities during the first three months of the year, following the addition of 33,000 jobs last year.
“Job growth is the key,” Wittenberg said.
With 76,000 jobs added since December 2010, the region is just 7,000 jobs shy of prerecession employment levels, according to the Minnesota Department of Employment and Economic Development. And with the wave of new jobs also comes a growing appetite among Twin Cities residents to be closer to work and city life. While homes sales have also taken off, there are plenty of renters by choice, ranging from young professionals to empty-nesters who like being near shopping, public transit and other amenities.
Real estate experts also point out that many people remain cautious about buying.
“They still don’t really know where prices will go, and people just want to maintain more mobility,” said Mary Bujold of Maxfield Research.
Brent Webb, managing director of leasing for Greco Real Estate Development, said 50 to 60 percent of new renters at a handful of newly opened buildings downtown are new to the Twin Cities.
“That shows that companies are hiring,” said Webb, who spoke at a housing conference in Golden Valley on Wednesday morning,
Webb and other downtown experts, including Joe Grunnet of the Downtown Resource Group and Cindy Froid of Keller Williams, say the rental market is also getting a boost from a shortage of for-sale condominiums. In downtown, there is less than a three-month supply of condos on the market and only one new condo project under construction. That’s a stark contrast to last year when “we were all crying in our Cheerios,” said Froid, referring to concerns about the health of the market. “The pendulum has swung so far and virtually overnight.”
But today there is growing concern that the apartment market is facing a bubble.
At the end of April, there were 2,055 apartments under construction in downtown alone with another 1,500 that have been approved. Most of them are in the central business district and in the North Loop neighborhood.
In downtown Minneapolis, there’s evidence the building boom is starting to make a dent in the market. The average vacancy rate went from 1.9 in the first quarter of 2012 to 2.2 percent in the first quarter of 2013. While the market is still far from the double-digit vacancy rates before the housing crash, experts agree the market could end up with too much supply. The big test will be what happens when three large apartment towers and several low-rise projects with several hundred high-end units become available next year.
“There’s so much new product being brought into the market,” said Lisa Moe, president and CEO of StuartCo. “I’m putting on my seat belt for 2014.”