Three years into an apartment building boom in the Twin Cities, there’s still not enough.
Young professionals, empty nesters and those burned by the housing crash are fueling unprecedented demand for apartments and the carefree lifestyle that comes with them, making the Twin Cities one of the hottest rental markets in the nation.
It’s also one of the most expensive. Minneapolis replaced Philadelphia last month as the 10th-most expensive rental market in the nation, according to Zumper, a national real estate database.
The strength of the apartment market underscores the vibrancy of the economy and job scene in the region. And it illustrates another phenomenon: There are now far more renters by choice than at anytime since before the housing crash in 2008.
Since January, more than 3,400 new apartments have hit the market in the 13-county metro region. Yet the vacancy rate dipped to 2.4 percent in the July-to-September quarter from 2.6 percent in April to June, according to new data from Marquette Advisors. Even in downtown Minneapolis, the epicenter of the construction boom, the vacancy rate fell to 3.1 percent from 5.7 percent.
At the same time, the average monthly rent for all unit types rose to $1,007 in the quarter, a record and 2.6 percent higher than the same quarter last year.
“There continues to be strong demand for luxury downtown living not only for Central Business District workers but reverse commuters who desire the amenities and active lifestyle offered here,” said Carl Runck vice president of development for Alatus, which is developing more than 300 luxury apartments in downtown Minneapolis. “The local economy is strong and vibrant enough to continue to support new projects that deliver what residents are looking for.”
Barb Halverson, president of Steven Scott Management, one of the largest apartment managers in the state, was surprised the vacancy rate improved given the surging number of units. She said she expected the rate to stay flat at best.
“It would appear the demographic and employment trends that make the apartment market strong are holding true to their promise at this time,” Halvorson said.
Though Minnesota’s jobs market during first six months of the year was relatively sluggish, employers picked up the pace over the summer. Minnesota added 16,300 jobs during the third quarter compared with just 3,200 during the first half of the year, according to the Minnesota Department of Employment and Economic Development. The unemployment rate of 3.6 percent in the metro area remains well below the national average of 5.9 percent.
“High-quality housing stock and vibrant residential and mixed-use neighborhoods are a critical component to attracting workers to our region,” said Brent Wittenberg, vice president at Marquette Advisors.
Downtown Minneapolis has accounted for 40 percent of apartment construction, mostly luxury buildings with resort-style amenities that cater to people who want the convenience of condo living without the responsibilities of ownership. The average rent downtown was $1,422 in the latest quarter, a 5.9-percent increase from a year ago.
There are some signs that the apartment boom has peaked. The projection for new building in 2015 is about 3,600 units, down from the nearly 5,000 that the market will wind up with in 2014. In Minneapolis’ Uptown neighborhood, developers are offering modest concessions, including free rent and discounted upgrades, to attract customers.
Apartments in the best locations are still doing well. Amanda Kelzenberg, site manager for the Vélo North Loop apartments, said it is now 70 percent leased after opening just three months ago. Every one of the building’s 540-square-foot studio apartments, which rent for $1,195 to $1,300, have been rented.