$1,469 1Q 2024
1.2%
94.2% 1Q 2024
-10 BASIS POINTS
5.0% (FEB 2024)
3.4% (FEB 2024)
* Please note that these employment figures have been adjusted for seasonal variations and are based on Moody’s Analytics forecast as of January 1, 2024.
** Please note that these unemployment rates are estimates that have not been adjusted for seasonal variations, and they are derived from Moody’s Analytics forecast as of January 1, 2024.
QUARTERLY DEMAND
QUARTERLY COMPLETIONS
Elevated demand, which began last year, continued into the first quarter of 2024. This sustained demand has helped mitigate the impact of a historic surge in new apartment deliveries across the metro area. However, despite this robust demand, it has not surpassed the influx of new supply for the eighth consecutive quarter. Additionally, demand patterns have shifted since the pandemic, with suburban areas experiencing healthy absorption, while the urban core continues to see subdued demand formation, struggling due to structural shifts in work arrangements.
Over the past 12 months, roughly 12,000 units have been delivered. However, a recent decline in new project starts suggests that by early 2025, the number of new completions will sharply decrease. This trend is expected to stabilize or increase occupancies and accelerate rent growth beyond 2024, especially in the fast-growing suburbs where lease-up velocities continue to be at historic levels.
Elevated demand, which began last year, continued into the first quarter of 2024, helping to mitigate the impact of a historic wave of new apartment deliveries across the metro area. Consequently, the average stabilized occupancy rate experienced only a slight decline of 10 basis points annually, settling at 94.2%. For context, the absorption of 1,700 units during this period was nearly 75% greater than the average rate for the first quarters of the pre-pandemic years from 2014 to 2019. Additionally, the annual demand for the year ending in Q1 2024 reached 9,400 units, surpassing the pre-pandemic peak by approximately 85%.
Average Monthly Mortgage Payment
Despite a record year of completions, the metro area’s annual rent growth of 1.2% still surpasses the U.S. average of 0.9%. A closer look reveals that rent growth in Minneapolis is being hindered by the underperformance of the Central Business District (CBD). Apartment rents in the downtown areas of the Twin Cities continue to face challenges due to structural shifts in work arrangements following the pandemic, with residents preferring more space over proximity to their workplaces. In contrast, rent growth in the metro’s suburban submarkets remains notably resilient, with healthy annual increases observed broadly across these areas.
Average Monthly Rent
According to data from MSCI, the investment sale volume of individual multifamily assets in Minneapolis surged in the first quarter, compared to the same period in 2023, even exceeding the pre-pandemic average for first-quarter volumes. The total reached $268.8 million across 19 sales, marking an increase of 10 sales compared to last year’s first quarter. Notably, five of these sales exceeded $20 million each. While private buyers constituted the entirety of the buy side in the first quarter, institutional and REIT buyers were still active throughout 2023, accounting for 23% of the purchases last year, though this was a smaller share compared to other years. Given the current economic headwinds, many investors are likely to remain cautious in early 2024. However, a potential interest rate cut in the coming months could influence investment activity in Minneapolis moving forward.
*Most Active Buyers and Sellers are based on the sale volume of apartment units.
* Trailing 4Q average PPU
* Preliminary Data from RCA – Individual transaction $2.5M +
Please note that the income and expense data presented in this section is sourced from third-party providers. Our firm does not provide any warranty or guarantee as to the accuracy or reliability of this information. We recommend that users exercise their own discretion and professional judgment when interpreting and utilizing this data.
| Income Assumptions | Value / Unit | Year Change (%) | |
|---|---|---|---|
| Occupancy (%) | 93.10% | -0.9% | |
| Rental Income / Occupied Unit | $1,488.99 | 4.8% | |
| Recoverable Expenses / Occupied Unit | $56.98 | 16.0% | |
| Other Income / Occupied Unit | $92.37 | 2.9% | |
| Total Income / Occupied Unit | $1,638.35 | 5.0% | |
| Operating Income | |||
| Rental Income | $1,388.09 | 3.9% | |
| Recoverable Expenses | $53.12 | 15.1% | |
| Other Income | $86.12 | 2.0% | |
| Total Income | $1,527.32 | 4.1% |
| Operating Expenses | Value / Unit | Year Change (%) | |
|---|---|---|---|
| Payroll | $145.13 | 5.9% | |
| Repairs & Maintenance | $52.76 | 4.2% | |
| Leasing | $58.86 | 6.8% | |
| General | $33.51 | 6.9% | |
| Marketing & Advertising | $19.83 | 13.9% | |
| Repairs & Maintenance | $136.19 | 6.1% | |
| Cleaning | $30.51 | 6.1% | |
| Roads & Grounds | $26.05 | 5.4% | |
| General | $79.63 | 6.4% | |
| Administrative | $40.63 | 11.9% | |
| Security | $4.08 | -16.9% | |
| General | $36.55 | 16.3% | |
| Management Fees | $56.04 | 3.9% | |
| Utilities | $92.84 | -8.3% | |
| Electric | $21.43 | -4.1% | |
| Gas | $18.62 | -32.4% | |
| Water/Sewer | $52.78 | 2.9% | |
| Real Estate & Other Taxes | $182.53 | 4.7% | |
| Insurance | $46.86 | 29.5% | |
| Other Operating Expensees | $4.96 | ||
| Total Operating Expense | $725.00 | 5.0% |
| Value / Unit | Year Change (%) | ||
| Net Operating Income | $802.32 | 3.4% |
|---|
Current project timelines indicate that net deliveries are expected to fall to 8,800 units in 2024, marking a more than 30% year-over-year decline. This reduction ranks among the ten largest projected annual decreases in supply across the 50 largest U.S. markets. Looking ahead, strong underlying demand drivers, coupled with a significant slowdown in supply pressure, may set the stage for vacancies to tighten by the beginning of 2025, potentially leading to accelerated rent growth thereafter.
