Very high occupancy but very limited rent growth – historically, that’s the profile of the Minneapolis/St. Paul apartment market. But in 2016, apartment operators became much more aggressive on rents.
Rent growth measured 4.8% in 2016, a five-year high that was well above the national norm of 3.7%. By comparison, rent growth in the Twin Cities has averaged 3.1% over the past five years.
The last high-rent growth period for the Twin Cities, 2011, was due to concession burnoff. The number of units offering rent discounts dropped from roughly 38% at year-end 2010 to 7% in 2011. In turn, annual rent growth measured 5% to 6% throughout 2011.
In 2016, rent performance was strong across product classes. Moreover, many submarkets possessed impressive annual pricing power, with South Minneapolis/Richfield and Uptown/St. Louis Park experiencing particularly strong increases of 7.0%.
Meanwhile, occupancy remained very tight – as usual – as annual absorption of 5,114 units outpaced supply of 3,290 units. Those demand levels managed to lift annual occupancy 60 basis points, to 97.7%. Luxury product saw even greater occupancy growth, jumping 190 basis points, year-over-year, to land at #6 on the national Class A Occupancy leaderboard.
Those measures are a response to a boosted local economy and subsequent renter confidence. In 2016, the metro grew by 27,400 net jobs, or 1.4%, according to preliminary data from the Bureau of Labor Statistics. That base growth was strong considering the metro’s 3.6% unemployment remains among the lowest nationally. The sectors of Education/Health Services and Professional/Business Services collectively accounted for nearly 94% of the new workforce roster, adding a respective 13,000 and 12,700 positions.
While those industries thrived in 2016, others took a hit. The Twin Cities saw the Leisure and Hospitality sector shrink by 3.0%, or 5,300 net jobs. The Manufacturing and Information industries experienced marginal base declines.
Developers are progressively receptive to market health. In December 2016, the market authorized 886 new units. The count, an 813.4% year-over-year spike, placed Minneapolis/St. Paul at #9 in the multifamily permit standings. For the year, the market authorized 6,211 units, a near-30% increase over the prior year. Those numbers supplement 7,341 in-progress units – nearly 5,000 of which are scheduled to complete within a year. Submarkets Downtown Minneapolis/University and North Minneapolis account for 37.2% of current construction activity, though significant development is apparent throughout the metro.
Quarterly performance metrics tell a softer story. In 4th quarter 2016, rents were unmoved, occupancy dipped 0.3 points and eight of Minneapolis/St. Paul’s 14 submarkets logged net move-outs. For the same period, the market collectively tallied 23 net move-outs and 612 completions. The metro, though, remains categorically solid, as the quarterly results are due to normal seasonality. Cold weather and holidays traditionally challenge regional leasing.