Even with new supply hitting the region, the Minneapolis-St. Paul multifamily market continues to see solid absorption numbers.
How resilient has the Twin Cities multifamily sector been? Marcus & Millichap in its fourth quarter research found that 2024 will mark the fifth consecutive year in which the Minneapolis-St. Paul market will have added more than 8,000 new apartment units, a figure that is nearly double the average from 2015 through 2019.
But even with this new supply, the year-end absorption total in this sector is expected to rank the fourth-highest on record for the region, according to Marcus & Millichap’s data.
And in the future? Marcus & Millichap said that permitting and construction starts in the multifamily sector are slowing. Coupled with sustained rental demand, this should result in solid rent growth in the Twin Cities market over time.
For now, though, the growth in apartment rents has slowed, thanks mostly to the surge in new product added to the market. Marcus & Millichap reported that the Twin Cities market has seen just 3% average annual multifamily rent growth since 2020. That is 320 basis points below the national mean.
Marcus & Millichap said that Class-A multifamily properties have a median vacancy rate of 6.2% and have seen average annual rent growth of 1.5% since 2020.
Class-B and Class-C apartment properties, though, have seen less new supply in their classes. The average Class-B property, then, has maintained a low 4.3% vacancy rate, while Class-C properties have seen an average vacancy rate of 3.2% since 2020, according to Marcus & Millichap.
During this same period, Class-B and -C multifamily properties have notched annual rent growth of 3.7%, 200 basis points above the metropolitan area’s long-term mean.
Marcus & Millichap reported that in 2024, the Minneapolis-St. Paul metropolitan area will add 8,800 new apartment units. This means that the stock of apartment units in this market will have grown by at least 2.6% for the fourth consecutive year.
More than 1,000 of these new apartment units are expected in the East St. Paul and downtown Minneapolis submarkets.
The overall apartment vacancy rate should hit 5.7% by the end of this year, according to Marcus & Millichap. That will be 110 basis points above the metropolitan area’s long-term average.
The region’s average monthly apartment rent is expected to settle at $1,575 by the end of the year.
Marcus & Millichap also reported that net absorption totaled more than 10,000 apartment units during the past year ending in June.
