Going through national commercial real estate reports, some things remain consistent. Rents are high in New York City and San Francisco’s Bay Area. There’s a lot of development in Texas. Tech hubs like Austin, Texas; Denver; and Seattle see insatiable tenant demand.
Sometimes a statistic jumps out, though. In this case, Minneapolis was at the beginning of the year ranked by a Marcus & Millichap report as having the nation’s strongest multifamily market.
As 2019 continues, it’s still performing strongly.
Last year vacancy rates ended at a very low three percent and are expected to dip down even further, to 2.8 percent by the year’s end, according to an Institutional Property Advisors (download here) second-quarter report on the market. That vacancy is low despite plenty of new product coming on the market. There were 7,700 rentals completed in 2018 and 15,000 over the last three years. Though 2019 will see a drop, 4,800, that’s still quite a few new apartments hitting the market.
One of the epicenters of new building in the area is around downtown and near the University of Minnesota. Three new complexes downtown will reportedly bring 800 new units there this year. The $100-million mixed-use Ironclad will total 14 stories and is near the city’s light-rail system. Rafter will be 26 stories tall with six stories of heated parking and ground-floor retail. City Club Minneapolis, with 17 stories, will have little parking and be geared toward people in their 20s who primarily rely on public transportation.
Rental rates are climbing with these new developments. Marcus’ second-quarter outlook (download here) forecasts rents climbing 4.6 percent as the year continues. That’s after a 4.8-percent jump over the last four quarters, brining the average to $1,305 per month. Class C experienced the largest rise, jumping 5.7 percent, to $1,060.
These numbers are driving investor interest in the Minneapolis-St. Paul metro, especially in class C. Marcus says trading volume increased four percent for these assets in the last year, while price points were up seven percent. Assets with less than 50 units are currently popular with buyers. The highest average rents are in the Plymouth/Maple Grove area, at $1,383, where vacancy is at 3.5 percent, down 30 basis points year over year.
So what’s driving all of this activity? Like many major metros, there were 130,000 new jobs added over the last five years creating nearly full employment, and open jobs are attracting new residents to the area. About 42,000 households were created in the last five years, and rising home prices aren’t making ownership affordable for many.
Meanwhile, Minneapolis, with its well-known large Somali population has a large percentage of refugees and international immigrants, building the area’s diversity along with overall growth.
About GRS Group
GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with a global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions.
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