Transaction activity ticks up to start 2024 in the Minneapolis multifamily market

Market fundamentals for Northmarq's Minneapolis 2024 multifamily market report for the first quarter.

Property fundamentals in the Minneapolis-St. Paul multifamily market were steady in recent months, as supply growth was mild during the first quarter. This extended a trend that has emerged in recent years of cooling development activity. Multifamily completions peaked in 2021, with annual declines recorded in each of the past two years. Permitting and construction starts are also slowing, which should limit supply-side pressures in the coming years. With inventory growth cooling and the local economy continuing to add workers, area vacancy has operated in a tight band for more than a year. Net absorption totaled more than 8,000 units during the past year, up 23% from the preceding 12-month period. Continued renter demand has also supported rent gains; asking rents increased by 2.5% in the past year. 

After slowing in 2023, transaction activity in the Twin Cities began to bounce back in the first quarter. The number of transactions surged from year-end 2023 levels, and sales velocity is ahead of the pace established at the beginning of last year. The transaction mix has not changed significantly, as Class C properties made up roughly half of all sales during the first quarter, with Class A and Class B assets each accounting for 25% of sales. The median price in all transactions to this point in 2024 is $131,400 per unit, up 13% from 2023 levels. Pricing varies by vintage however,  with some newer properties trading above $300,000 per unit, while a handful of Class C assets have changed hands at less than $100,000 per unit.

Looking ahead

While many markets in the country are recording rapid increases in multifamily supply, developers will slow activity in the Twin Cities this year. Projects totaling 6,000 units are expected to come online in 2024, down more than 30% from the 2023 total and about 45% lower than the market’s 2021 peak. While supply growth is slowing, renter demand should remain strong going forward. The local labor market is forecast to continue to add positions and the region’s population is expanding. Vacancies are expected to remain near current ranges throughout the remainder of the year, while demand should be strong enough to support modest rent gains.

A healthy start to 2024 could result in a more active investment market this year, following a considerable drop in sales velocity in 2023. Investors will likely be drawn to the region’s consistent rent growth and stable vacancy conditions in the coming periods, and the upward trend in cap rates is offsetting some of the rise in interest rates that dragged on investment activity last year. The deliveries of new units in recent years could yield some additional transaction volume. Roughly one-third of the projects built since the beginning of 2023 have already stabilized, and some of these assets will likely change hands.

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