Though hundreds of apartments have hit the market — creating plenty of supply — rents are going nowhere but up.

The average rent across the metro area rose 3.5 percent to $984 during the third quarter, according to a report released Monday by Marquette Advisors. The increase comes amid growing concern that the rental market is on the verge of saturation. Developers have announced plans for thousands of new apartments in the Twin Cities, yet there's no evidence the region has been overbuilt.

The market has been "buoyed by strong demand fundamentals, with positive momentum in the job market, favorable demographic trends, and an increasingly popular and 'livable' downtown neighborhood," according to Brent Wittenberg, Marquette's vice president.

The average vacancy rate across the metro fell slightly to 2.5 percent from 2.7 percent last year. Market watchers are paying close attention to Minneapolis, where apartment development has gone gangbusters, mostly in Uptown, the University of Minnesota area and downtown.

In downtown alone, 932 new units came online during the first nine months of the year and Wittenberg said another 600 units are expected by the end of the year. Because building owners have been able to rent those new units relatively quickly, and most of those apartments are in high-end boutique buildings, downtown has seen some of the metro's biggest rent increases. The average rent in that part of the city was $1,343, a 6.9-percent increase over last year.

As baby boomers seek maintenance-free living and the economy improves, the homeownership rate across the state has fallen and demand for rentals throughout the metro has grown. Renters so far this year have occupied an additional 2,317 apartments more than they did last year.

Mary Bujold, who tracks apartment construction for Maxfield Associates, said apartment developers are showing no signs of slowing.

Wittenberg agrees. He expects about 1,100 additional new market-rate units to hit the market during the next three months, half of which will be in downtown Minneapolis where construction is underway on two apartment towers that will be ready for occupancy next year.

At LPM Apartments overlooking Loring Park, for example, crews are nearing completion of the 36-story glass-and-metal tower, which will add several hundred high-end apartments. The Nic at Fifth, another luxury high-rise along Nicollet Mall, is also nearing full height. Apartments in those buildings will rent for upward of $2.50 per square foot.

'B product' still strong, too

Despite the addition of those new luxury units, Wittenberg noted that "B product" — apartments that are older and with fewer amenities — are still renting well and commanding decent rent prices in the face of that stiff new competition.

That's particularly true in parts of the metro where there's been little construction. For example, at Mid Continent Management Corp. in St. Paul, which manages 3,500 apartments across the metro, the vacancy rate is at 1.4 percent.

"Even if one of the new-product buildings were close to one of ours, their rents are north of $2 per square foot, and we're at $1 per square foot or less," said Susan Schnarr, the company's executive vice president.

She said the new buildings are all much more expensive, and the residents for each product type are totally different, so her company and others have fared well because they offer apartments that are much more affordable than the new ones.

And, in a sign of an improving economy, there's growing demand for two-bedroom apartments, Schnarr said.

"I think roommates sharing has become popular again," she said. "After several years of them moving back to mom and dad."