After several years of leading the construction recovery in the Twin Cities, urban rental apartments are losing ground to suburban single-family houses so far in 2015.
In May, the ’burbs dominated. Of the 516 units permitted in the metro during the month, 348 were for single-family houses; 168 were for multifamily, mostly luxury rental apartments, according to a monthly report from the Builders Association of the Twin Cities.
Minneapolis, which saw the most housing construction last year, is no longer the most active city for homebuilders. Last month, Champlin led the pack with 72 planned units, followed by Edina (65 units) and Lakeville (34 units).
Year-to-date in the Twin Cities, permits to build single-family houses are down 5 percent, while multifamily is off 26 percent, according to the BATC report.
Builders pulled 15 percent fewer permits in May than the same period a year ago, but the total units were comparable — off by just three.
“While we are pleased to see construction clipping along at a relatively steady pace, we remain concerned,” said Chris Contreras, BATC president. He noted that it was the third month in a row in which overall residential construction lagged behind 2014.
So far this year only about a third of all planned units are multifamily buildings, mostly luxury rental apartments, compared with an average of about half in 2014 when more than 4,391 new apartments hit the market, most of them in Minneapolis, according to Marquette Advisors. This year, developers are expected to deliver only about 3,100 units metrowide.
Still, Brent Webb, business development associate for Minneapolis-based Sherman Associates, said that even though apartment vacancy rates are still healthy, there’s some concern that some parts of Minneapolis have too many new apartments.
“There is some uncertainty how long this [development] cycle will last,” he said.
For now, Webb said that institutional investors still have confidence in the Minneapolis market. Sherman recently sold the Paxon North Loop apartments for almost $39 million to a New York investor just months after completing it, and several recently built apartment buildings in the city have sold for record prices.
“Because of this, people will still look to develop more apartments, especially with the fairly quick lease up success of new product,” Webb said.
With the rental market stabilizing and existing home sales rising double-digits in the Twin Cities during recent months, buyers are shifting their attention to new single-family houses in the suburbs.
The U.S. Census Bureau said recently that nationwide new single-family home sales during April exceeded expectations, rising 6.8 percent compared with the revised March estimate of 484,000.