The 155,567-unit Minneapolis apartment market had the third lowest vacancy rate among the top Reis markets at 2.4% in the second quarter of 2012. The rate fell 10 basis points during the quarter despite the completion of 188 new units in two projects, as net absorption totaled 299. The rate remained at 2.4% in July. The second quarter Class A vacancy rate is 3.3%, unchanged from a year earlier, while the Class B/C rate is just 1.6%, down 10 basis points for the quarter and 100 from a year earlier.
Another 180 market rate units completed construction in the third quarter, with nearly 500 more under construction for delivery late this year—and nearly 2,800 under construction for delivery later. Accordingly, developers have responded to the housing shortage, and more than 2,000 new units are forecast to complete construction in both 2013 and 2014. Demand, however, is forecast to remain strong, keeping the vacancy rate low. After hitting bottom at around 2.2% at year-end 2012, it is forecast to remain below 3.0% through 2016 despite all the new supply.
Despite limited income gains, rent gains are now very large. In the second quarter the average asking rent rose 0.9% to $998 per month, while the average effective rent increased 1.2% to $965 per month. The year-over-year gains were 2.7% asking and 4.8% effective. The Class A asking average increased 1.1% during the quarter to $1,193 per month, with the Class B/C asking average up 0.8% to $841 per month. Overall rents rose 0.2% in July. The effective average had increased 4.0% in 2011, and is forecast to rise 5.0% in 2012. Both the asking and effective averages are forecast to rise 5.0% to 6.0% each year from 2013 to 2016.
Rents have reached a record high ahead of a spike in supply according to the third quarter report from Marcus and Millichap. This source predicts a year-end 2012 vacancy rate of 2.9% and an average asking rent of $988 per month.