By Dan Rafter
A diverse employment base. That’s what Thomas O’Neil credits for the ongoing boom in apartment construction in the Minneapolis/St. Paul market.
And O’Neil should know. He’s the vice president of Midwest FHA operations for Minneapolis-based Dougherty Mortgage, LLC and the author of the company’s latest Market Viewpoint report analyzing the Twin Cities’ multi-family market for 2014 and 2015.
O’Neil’s report details just how many new apartment units have hit the Twin Cities’ market in recent years. According to O’Neil’s numbers, since the beginning of 2010, developers have built more than 110 apartment projects with roughly 13,300 units in the Minneapolis/St. Paul market.
O’Neil told Midwest Real Estate News that this is a trend that has been taking place for a long time in the Minneapolis/St. Paul market. O’Neil cites low unemployment and a variety of employer types as the primary reasons why so many young people want to rent in the Twin Cities area. As O’Neil says, the Minneapolis/St. Paul region boasts 18 Fortune 500 companies.
“We are strong in banking. We are strong in medical technology and the food industry,” O’Neil said. “Our top employers represent modern industries that are attractive to potential residents. I think that employment strength underpins so much of the construction activity that goes on here.”
A diverse employment base, though, isn’t the only reason for the apartment boom in the Twin Cities. Pent-up demand for rental housing is also driving much of the multi-family construction activity here. As O’Neil says, there wasn’t enough multi-family or single-family housing construction from 2008 through 2011 to meet the demands of a growing population.
According to Dougherty’s report, the number of households in the Twin Cities continued to expand by about 14,000 to 15,000 people each year during that time period. But during that four-year period, housing production brought no more than 5,000 units in any given year to the region.
Developers, though, haven’t been shy about meeting the area’s demand for rental housing since 2010, in part thanks to the low interest rates that remain today.
As Dougherty’s report says, the multi-family boom in the Twin Cities isn’t over, either. According to the report, the market will see the arrival of 22 new multi-family projects in 2015. These projects will add more than 3,800 new rental units. And in 2016? Up to 11,400 rental units are being proposed for the market.
O’Neil says that he isn’t worried that developers are overbuilding here.
“I’m not concerned simply because for so many years our housing production in the Twin Cities was so low,” O’Neil said. “In the years of the housing crisis and the financial crisis, we were not producing enough housing units for the number of people who were moving here. So there is an element of catch-up going on now in the housing market. We haven’t yet met all of the pent-up demand.”
For evidence of this, O’Neil points to a multi-family vacancy rate that fell to just 2.4 percent in the third quarter of 2014 in the Twin Cities market.
“Clearly, we are absorbing all the new rental housing that is being built,” he said. “There will still be a healthy, strong rental market through 2015, at least.”
The Minneapolis/St. Paul market is benefiting from another trend: In recent years, young consumers have increasingly headed to the core areas of cities. They want to live in an area in which they can walk to public transportation, movies, grocery stores, restaurants and parks.
This trend has been evident in the Twin Cities for years. It’s one of the reasons why developers have been so eager to build multi-family projects in downtown and its surrounding communities, O’Neil said.
What type of rental housing is being built here? According to Dougherty’s report, developers have built a solid number of high-rise apartment projects — those rising eight or more stories above ground — in downtown Minneapolis, neighborhoods near the University of Minnesota and in certain suburban locations such as Edina, Bloomington and St. Louis Park. This high-rise construction has accounted for 8 percent of all the new apartment units built here since 2010.
Mid-rise construction, though, has been even hotter. Developers have built 74 mid-rise buildings — those rising four to seven stories above the ground — in all areas of the Twin Cities market since 2010. This type of building has accounted for 59 percent of all new rental units in the market since 2010.
O’Neil expects the positive multi-family news to continue for the Twin Cities. He expects more young residents to head to the urban core of the market. And he expects government officials and developers here to continue putting dollars into the region’s infrastructure and amenities as a way to attract new residents of all ages.
“We have had two light-rail lines open in the Twin Cities in the last 10 years. We have also had a commuter rail line open,” O’Neil said. “That has helped generate interest in the central core of the Twin Cities. It has also really helped to spur development along those lines. That has been an important factor, too, in boosting the amount of apartment units being built here.”