Following the recession, demand for multifamily development took off in many areas of the country. We predicted it as significant economic and demographic changes were happening, spurring a shift from homeownership to renting. As a result, the multifamily sector experienced a resurgence that hadn’t been seen in decades.
In some cities where an abundance of multifamily projects have been delivered, there is discussion of potential saturation. That’s not the case in the Twin Cities of Minneapolis and St. Paul, where demand for multifamily developments remains strong and the vacancy rate is an extremely low 2.6 percent.
Matt Rauenhorst, Opus Development Co. LLC
Based on data from the U.S. Census Bureau, at the end of 2016 the vacancy rate in the Twin Cities compared quite favorably with other metropolitan areas such as San Antonio, Texas (13.6 percent); Tampa, Fla., (11.6 percent); and Tulsa, Okla. (10.2 percent). Keep in mind that a 5 percent vacancy rate is considered to be a stabilized market.
Healthy job growth
Several economic factors continue to drive apartment demand in the Twin Cities, including job growth, low unemployment and a strong base for business expansion.
Minnesota ranks third in the nation for number of Fortune 500 companies per capita. Prominent corporations with headquarters in the Twin Cities include 3M, Target, United Health Group, Cargill, Best Buy and Allina Health Systems, to name a few. Many are growing and adding employees, bolstering the area’s need for additional housing, including apartments.
Renters by choice
While the housing market is recovering, homeownership rates in Minneapolis have not returned to pre-recession highs of 50 percent or above, according to CivicDashboards data company. They’ve leveled off at 47.4 percent in Minneapolis, and demand for new apartments remains strong. Fewer people are choosing to own homes and instead are becoming renters by choice. The majority of renters are millennials, but we are experiencing demand from a broader base that spans a variety of generations, including empty nesters.
In addition to urban and edge-of-urban multifamily developments, there’s also demand for apartment homes in first-ring suburbs. Renters are attracted by nearby amenities, as well as convenient and improving access to public transit, shopping, walking trails and parks. Opus and other developers continue to initiate multifamily developments in the Twin Cities, prioritizing well-located projects in areas where demand exceeds available product.
Targeting today’s renters
The best developers understand that today’s renters not only want desirable locations, but demand well-appointed apartment homes. Opus is finding success by targeting the needs of certain categories of renters and designing multifamily projects geared toward their lifestyles.
For example, in downtown Minneapolis on the famed Nicollet Mall, The Nic on Fifth and 365 Nicollet are high-rise projects targeting affluent, well-established renters who desire luxury living at its best while remaining in the core of the central business district. With high-end amenities and finishes throughout, the emphasis is on opulence and enjoyment of living spaces and indoor and outdoor amenity areas.
Meanwhile, several blocks away in the North Loop neighborhood, the six-story Variant is geared toward younger renters and millennials who want to live well, but at a lower monthly rent and in smaller units. These renters are attracted by the area’s lively breweries, chic boutiques, and bike-friendly urban environment, and spend a good amount of time outside their apartments. Amenities such as dog washes and bike storage are geared specifically toward this target renter.
Well-appointed apartments
When choosing an apartment, key drivers of value for renters are desirable aesthetics and practical livability. For example, to maximize unit size, Opus designers put a great deal of thought and energy into unit layout and design. They study and consider how people will live in the space, and then design efficient and livable layouts to maximize the space, no matter how limited.
Efficient kitchen workspaces, innovative lighting solutions and window design contribute significantly to making apartments attractive to renters. Exceptionally designed public spaces also attract and retain renters, such as inviting corridors that create a sense of entry for each unit with insets, number plaques and lighting.
Top developers also anticipate societal shifts and consider them when designing public spaces. For example, shopping habits are rapidly shifting online and renters want efficient systems for retrieving packages. Therefore, flexible automated package rooms designed to accommodate smart lockers and systems like those offered by Luxer One Package Locker are imperative to attracting renters.
Bullish on multifamily
While we are in the advanced stages of the multifamily real estate cycle, Opus and many developers in the Twin Cities are optimistic. It’s a vibrant market where multifamily developments are stabilizing quickly, a high number of rental units continue to be leased up and vacancy rates remain low.
Using baseball as an analogy, we are in the sixth inning in the Twin Cities market overall, but given the growth in demand there are geographic pockets that are much earlier in the game.
-By Matt Rauenhorst, Vice President, Real Estate Development, Opus Development Co. LLC. This article first appeared in the March 2017 issue of Heartland Real Estate Business magazine.