A year after the pandemic led to widespread closures and a seismic shift in the workplace, we’ve reached out to local Twin Cities real estate industry professionals to highlight some of the key themes from this past year, as well as a look ahead at what’s in store for the coming months. Despite the hardship many faced in 2020, the outlook remains optimistic for the next couple of years as vaccinations increase and cities begin to slowly, but surely, open back up for business.
Minneapolis was hit particularly hard in 2020
The Twin Cities not only had to face the fallout caused by the novel coronavirus, but there was also an extended period of social unrest during the summer of 2020 that had an elevated impact on downtown Minneapolis versus other regions.
“A lot of bigger cities around the country are seeing a meaningful improvement in their urban centers, but unfortunately in Minneapolis, we’re lagging behind and I think we know why,” says Keith Collins, Executive Vice President with CBRE, highlighting the ongoing social unrest that has gripped the Twin Cities especially hard.
However, the suburbs remain relatively strong and there’s still a lot of capital interest in multifamily opportunities across the metro region, Collins adds. Savvy investors may also see opportunities in possible discounts on multifamily properties in downtown Minneapolis until the economy rebounds in the coming year or two.
Occupancy and collections remained consistent
Many landlords and management companies with properties in downtown Minneapolis and St. Paul were faced with a conundrum last summer — do you raise rents and risk losing tenants or do you work with existing renters while offering deals to potential leasees?
A lot of property owners chose to incentivize new lease activity and renewals with concessions and other favorable terms for renters.
“Our collections have stayed very strong over the past 12 months in the COVID environment as we’ve averaged 98% or greater in any given month over the last year, which is great,” says Grant Campbell of Centerspace. “A little bit of that is the midwestern ethos of paying your rent and doing what you’re supposed to do because some east coast markets haven’t fared as well from a collections perspective.”
The pipeline continues to deliver thousands of apartments
Before the pandemic hit, the Twin Cities had been on a roll of breaking year-over-year delivery records. And throughout 2020 and even in 2021, the flood of new apartment deliveries continues, putting pressure on landlords to keep offering flexible lease terms and concessions to fill units, Matt Mullins of Maxfield Research and Consulting says.
“Over 10,000 units were delivered in 2020 in the greater metro area, so from a supply standpoint, it’s a substantial increase,” Mullins says. “We’ve had four straight years of record-breaking growth for new construction and 2019 was our previous high when we had just over 7,000 units.”
Mullins adds that the bulk of the new construction rental deliveries were made in downtown Minneapolis last year with 4,400 units added. But the pandemic and social unrest were a “perfect storm” which led to a double-digit vacancy rate in downtown Minneapolis. There are still thousands more apartments slated to be completed throughout this year, which will give renters plenty of flexibility, options, and continued concessions.
Affordable housing remains a priority
Affordability was already a well established issue before the pandemic, but the economic divide was only exacerbated by mass layoffs and the closure of the retail and restaurant industries. Corporate employees were sent home to continue working (and collecting a salary), while the workforce in the hospitality business, retail and similar industries had to rely on unemployment and savings to get through 2020.
“Delinquency has certainly been higher than in years prior as many of our customers have experienced hardship, so we’ve worked closely with them and local, state, and federal funding to catch them up on late rent payments,” says Chris Sherman of Sherman Associates, which manages a large portfolio of affordable housing units across the Twin Cities.
The flip side is that those who currently live in affordable units are motivated to keep their apartments. “Our retention has kept up over the last 12 months so that has helped offset some of the negative impacts,” Sherman adds. Meanwhile, downtown dwellers who can not only afford to move, but have been offered flexibility to work remotely, are taking advantage of the situation and relocating to the suburbs or other regions.
There are still a lot of opportunities to do business
Throughout the pandemic, the housing market across the nation has continued to show resilience and strength. There are still a lot of good reasons to do business and if anything, the pandemic has illustrated how important the home continues to be as an investment vehicle.
“There was a softening right after the pandemic started, but the essence of it is that if you’re an apartment guy and this is your business, lenders want to lend and buyers want to buy,” says Steve Michel of Michel Commercial Real Estate. “The rates are low and if you find a property that meets your criteria, then you should buy,”
Investors and property owners should stay optimistic, Michel adds, pointing to the built-up, amenity-rich environment of downtown Minneapolis where there is still real value to be added.
“We’ve got unlimited product and investors who want to be here — not just locally or regionally, but nationally — and except for the brief bump we all took when the pandemic was announced in March, we’ve had three good years and I think across the board you’ll hear other brokers say the same.”