by H. Ellis Beck

Usually, holidays don’t have much impact on the health of a market, but when analyzing the Twin Cities apartment market, my thoughts turn to Groundhog Day. Yet again, the local apartment market had an extremely solid year, adding inventory and successfully leasing up that new space while rental rates grew. However, as in recent years, signs suggest that this run of growth in the market may be nearing its end point, as local employment growth and rental rate growth slow. Once again, the local apartment market had an extremely solid year, adding inventory and successfully leasing up that new space while rental rates grew. However, as in recent years, signs suggest that this run of growth in the market may be nearing its end point, as local employment growth and rental rate growth slow.

The Minneapolis-St. Paul apartment market has been consistently strong over the past decade, with vacancy rates remaining below 5% in the market over the past nine years. This has spurred a period of significant development that has continued through 2019. This should span into 2020, with more than 10,000 units expected to be delivered. This rise in apartment stock has not been spread throughout the metro, but has been concentrated in a few key areas, namely Downtown Minneapolis, in and around the University of Minnesota campus, and several clusters of suburban areas, primarily located near major highway intersections.

Through all this, capitalization rates have continued to compress, as out-of-state buyers look to get into an extremely tight market. At the same time, average prices have risen to over $130,000 per unit. With the large amount of inventory expected to come online in 2020, this is a trend we anticipate continuing.

Stop me if you have heard this, but it seems like we are headed for another year of a growing apartment market. Still, this can not and will not last forever, so keep an eye on key indicators such as local employment growth and rental rate growth to predict when this will finally end.