Multifamily Demand Remains Strong Despite Apartment Development Slowdown in the Twin Cities

While the narrative might suggest an overabundance of multifamily housing in the Twin Cities, recent data paints a different picture. A  Star Tribune article that was published this week highlights a significant decrease in apartment permits issued, with only 115 permits granted this April compared to April 2023 — a 55% drop. This contrasts with the rising demand for rentals driven by affordability challenges.

What should investors take away from this? There is a high demand for multifamily apartments. The metro area already faces a housing shortage. Coupled with single-family home affordability decreasing because of rising mortgage interest rates, the demand for multifamily housing should only go up from here. At a time when more multifamily units are needed due to rising mortgage costs and renters staying put, the stark drop-off in apartment construction during 2023 will most certainly create an opportunity for the 17 projects Roers Cos. began construction on last year. When these projects open in 2025 and 2026, there will be less competition, and the absorption is expected to go faster. 

Moreover, despite a near-record number of apartments built last year, the limited supply from new deliveries coming online in 2024–25 is expected to cause rental rates to surge across the metro area. Apartment deliveries are forecasted to fall by more than two-thirds next year, according to Maxfield Research. That puts upward pressure on rents in much of the metro and on average, rents have already increased 4.4% since last year. Despite a record number of units coming online in 2023, the overall vacancy rate of 5.3% has remained unchanged from the previous year.

What should investors take away from this? The time to invest is now. With a limited supply of new apartments coming online and strong absorption of existing units, rents are expected to continue rising, leading to positive investor returns.

With supply constraints expected in the near future, we foresee strong occupancy rates and rental prices continuing an upward trend. The persistent demand for multifamily properties shows no signs of waning, ensuring future stability and growth in the multifamily sector. This ongoing demand offers an enticing opportunity for investors seeking promising returns.

Date published 05/01/2024

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Sources: Star Tribune