Absorption Outpaces Supply, Driving Strong Multifamily Rent Growth and Falling Vacancy in Minneapolis-St. Paul

The Minneapolis-St. Paul multifamily market remained on an improving trajectory in the second quarter, characterized by steady renter demand that has allowed vacancies to inch lower in recent periods and supported two consecutive quarters of rising rents. Rents posted a 2% quarterly increase in the second quarter, a stronger three-month gain than has been recorded in more than three years. While development in the first half has closely tracked levels from last year, absorption has kept pace with supply growth, allowing for modest vacancy tightening. The current vacancy rate of 4.7% has dipped 20 basis points from one year ago and is at its lowest level since the second half of 2022.

On the investment side, transaction volume slowed from the recent high recorded in the first quarter, with a total of 12 multifamily properties changing hands during the second quarter. Pricing has remained elevated to this point in 2025, with a median price of $192,500 per unit, higher than pricing levels from both 2023 and 2024. On average, cap rates are generally fairly steady, with most properties selling with cap rates in the low- to mid-5% range.

Looking ahead

The local multifamily market in the Twin Cities is expected to remain active in the coming years. Developers had taken a much more cautious approach in pursuing new projects in the region a few years ago in response to passage of controversial rent stabilization measures in St. Paul. During the second quarter, the St. Paul City Council voted to permanently exempt new construction from rent control caps, removing an impediment to new development. In the near term, the bulk of the deliveries scheduled for 2025 have already occurred, and the construction pipeline has thinned, setting the stage for limited deliveries during the next 24 months. Over the extended outlook, the removal of uncertainty surrounding the economic viability of new construction projects will likely spur supply growth beginning over the course of the next few years.

The same forces that should facilitate development activity will likely also spur increased transaction volumes. The investment market got off to a strong start to 2025, before activity moderated somewhat in the second quarter. Still, sales volumes in the first half of this year are nearly identical to levels from the same period in 2024 and have doubled the number of transactions that occurred in the first half of 2023. Strengthening operations should support a more robust investment climate going forward. Area vacancies generally remain within a fairly tight range, but did reach as high as 5.2% in early 2023, and have inched lower in recent periods. A return to longer-term averages near 4%, coupled with steady rent increases would strengthen property performance, and make underwriting new acquisitions easier.

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