Multifamily Investors Ramping Up Activity as Deliveries Slow in Minneapolis

Q2 2024
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Multifamily properties in Minneapolis-St. Paul performed well during the second quarter, while developers have maintained a slowing pace of inventory growth. Construction peaked in the Twin Cities in 2021, and annual completions have slowed in each subsequent year. The current conditions are allowing for some modest vacancy tightening. The current vacancy rate is 30 basis points lower than it was one year ago and similar to its average level since 2020. Recent vacancy improvements fueled the region’s largest quarterly rent gain in two years. Asking rents advanced by 1.8 percent during the second quarter and current rents are up 3 percent compared to levels from one year ago.

Investors ramped up activity levels in the Twin Cities during the second quarter. Transaction volume during the latest three-month period outpaced levels recorded in the first quarter by 67 percent, and sales through the first half of 2024 have doubled levels recorded in the same period of 2023. Additionally, the number of properties that traded in the first half outpaced totals from both 2021 and 2022. A more certain outlook for the region’s multifamily sector is allowing the investment market to normalize, and the transaction mix has remained consistent from 2023 to 2024, with lower-tier assets making up roughly half of all sales to this point in the year. Pricing has picked up in 2024 after dipping last year.

Looking ahead

Operating conditions in the Minneapolis-St. Paul multifamily market should maintain healthy performance through the remainder of the year. The supply-side pressures that are dragging on property performance across many major markets in the country are largely absent from the Twin Cities, which has allowed for modest gains in most property performance metrics. Annual inventory growth is forecast to return closer to the region’s long-term averages after elevated completions from 2021 to 2023. Projects totaling 6,000 units are expected to come online in 2024 after developers completed an average of roughly 5,500 units per year from 2015 to 2020.

Operational stability is supporting investment conditions in the Twin Cities multifamily market, a trend that is likely to continue in the coming quarters. Transaction counts in the first half nearly matched the full-year total from 2023, putting the market on pace to significantly surpass levels recorded last year. While velocity in the investment market is up, the transaction mix is holding steady, with Class C properties accounting for about half of the properties changing hands during the past 18 months. With Class C properties generally outperforming the market averages, investor demand should remain in place.

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