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Multifamily
landlords’ optimism over the outlook in demand for apartments was
dampened by the continuing weakness of the job market in the metropolitan
area.
Even so, demand held up well enough to absorb most of the growth in supply
over the first six months of the year. Vacancy increased slightly, from
6.6% at year-end to 6.7% at mid-year. Rental rates remained flat,
averaging $843 per month, although concessions have decreased net
effective rental rates. Concessions of up to a month’s free rent on a
new 12-month lease are very widespread.
New
Construction Pipeline Bringing 2,400 More Units To Market
New
development is slowing, but only marginally this year. Approximately 2,400
new apartment units are scheduled to come online this year. Another 1,400
units are currently under construction for occupancy in 2004.
Even
though the timing is perhaps not ideal for new development – many of the
projects under construction were conceived, approved and financed when
economic conditions were much stronger – the fact is that an increase of
2,400 new units over a year is not a huge number for a market the size of
the Twin Cities. New development lagged population growth and demand
throughout most of the previous decade and on up to 2001, when state
property tax law changes made multifamily development a more viable
economic activity once again.
Multifamily
Housing Keys Economic Revitalization In Central Cities
Multifamily housing
development is playing a major role in the economic revitalization plans
of both of the central cities of St. Paul and Minneapolis. St. Paul is
ahead of schedule on its Housing5000 initiative, a drive led by Mayor
Randy Kelley to add 5,000 new housing units in the city by 2005. Almost
1,000 new apartment units have come online in the city over the past year
and one-half the 125-unit Sibley Park project developed by Sherman
Associates.. Several other significant projects, including the 300-unit
Upper Landing project, are currently underway in the city.
Minneapolis
is also adding new apartment units, including the 221-unit Stone Arch
Apartments now under construction across the Mississippi River from
downtown Minneapolis; and the 163-unit Uptown City Apartments development,
a two-building project under construction on West Lake Street at Fremont
and Aldrich Avenues South. The City of Loring Park, a 161-unit project in
downtown Minneapolis, is now in leaseup.
Nearly 400 new units will come online in Eden Prairie through the end of
this year and into early 2004, as projects by North American Properties
and the Dominium Group are completed. Steven Scott Development is
constructing 161 new apartment units in Minnetonka. In Apple Valley, The
Hartford Group is constructing its 244-unit The Legacy of Apple Valley
project.
THE
OUTLOOK
Even with the recent growth in the supply of apartments in the area,
the Twin Cities remains a supply-constrained market insofar as apartment
development is concerned. High land and construction costs and regulatory
and community issues will continue to constrict the market, especially in
comparison to less-constrained metropolitan areas such as Phoenix and
Dallas.
Many in the real estate industry see the current slowdown in the apartment
market as a temporary phenomenon, to be replaced by a return to healthy,
if not robust, growth, within a matter of two to three years. Low interest
rates have lured many renters into homeownership over the past couple of
years, exacerbating the effects of the rise in unemployment numbers.
Landlords and developers alike are counting on a rebound in Twin Cities
employment numbers over the next few years to rekindle demand for
apartments. That looks like a safe bet, based on the recent Minnesota
Labor Force Projections: 2000-2030 produced by the State Demographic
Center at Minnesota Planning. The number of jobs in Minnesota, two-thirds
of which are concentrated in the Twin Cities metropolitan area, will grow
by 16% this decade according to the report. That’s an average of 43,000
jobs per year, or 1.5% per year.
Minnesota’s
population passed the 5 million mark in July 2002, and the state remains
one of the fastest-growing states in the Midwest and Great Plains region,
according to Minnesota Planning. Just as the tight job market of the 1990s
encouraged people to move to Minnesota and the Twin Cities, job growth in
the years ahead may well fuel similar in-migration of people through the
balance of the decade. That’s one reason why many experts feel that the
vacancy rate in the Twin Cities will top out in the 7% range over the next
year or so, followed by a return to stronger demand and tighter vacancy
rates by 2005-2006.
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