Minneapolis Multifamily Market Report
Market Overview
Minneapolis is having its second-strongest quarter of absorption on record, nearly tripling the average from 2015-2019. A robust job market and high affordability led to the absorption of 4,000 units in Q2 2024. The city’s diverse economy and vibrant arts scene have created attractive investment opportunities. The vacancy rate has compressed by over 100 basis points since reaching an all-time high in Q1 2024, the main factors being strong demand and a sharp slowdown in construction starts over the past year. 12-month construction starts have dropped by over 60% from peak levels to around 5,200 units as of mid-2024, a six-year low. The market has been experiencing a positive shift from its ninth-straight quarter of annual supply outpacing demand to currently 12-month absorption roughly matching annual net deliveries.
Minneapolis By the Numbers
- Y-O-Y Employment Change: 0.1%
- Vacancy Rate: 7.3%
- Rent Growth: 1.1%
- 12 Mo Deliveries in SF: 11,427
- 12 Mo Net Absorption in SF: 11,262
- 12 Mo Sales Volume: $1.4B | Last 12 Months | Source: CoStar Group
Market Performance
While the vacancy rate has decreased from an all-time high of 8.4% in Q1 2024 to 7.3%, it still remains significantly above the 2015-2019 average of 4.8%. Despite record supply, there has been a steady increase in suburban rent growth with the rate increasing by more than 2% year-over-year, in line with the 20-year average. Institutional investors have been focused primarily on Class A.
Class A apartments make up nearly 90% of multifamily construction since 2010, with approximately 55% of annual deal flow tracing back to Class A stock. The reasoning is more affordable housing projects have additional features and constraints that increase the cost of development, and affordable projects cost around twice the cost of high-end market rate development in Minneapolis. Construction costs remain inflated anywhere from 15% to 40% compared to pre-pandemic, while construction loan rate have more than doubled since early 2022. In comparison to their suburban counterparts, urban apartments will see more significant downward pressure on pricing due to structural changes in demand drivers and differences in rent growth performance.
