twin cities apartment market conditions winter 2014/2015 brent wittenberg – marquette advisors...

Twin Cities Apartment Market Conditions

Winter 2014/2015

Brent Wittenberg – Marquette Advisors

612-392-2344

[email protected]

Apartment Trends – Winter 2014/15

• Twin Cities remains one of the strongest apartment markets in the U.S.!

– Sustained low vacancy (<3.0% metro);

– Steady rent growth;

– Strong demand fundamentals.

• Deep & diverse economy. Job Growth! In-migration fueling demand.

• Increasing propensity to rent – economic & lifestyle factors.

• Favorable demographics (Millenials and Boomers)

• Millenials fueling demand. Preference to rent; all income levels.

• Empty nesters too, but smaller numbers to date.

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Marquette Advisors

Marquette Advisors

One of Strongest Markets in U.S.

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Source: Marcus & Millichap

Apartment Trends – Winter 2014/15

• One of most active new construction markets in U. S.

– Expect 12,000+ new units 2014-2016 . Includes 3,500 in Downtown Mpls.

– Major supply increases in Mpls creating competitive market. However, NOT a demand problem. Do NOT expect overbuilt submarkets. New product being absorbed; very limited use of concessions/incentives by apartment owners.

– Healthy market experiencing absorption & temporary vacancy adjustment in active submarkets, expect market re-balance to 5.0% vacancy by late 2016.

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Marquette Advisors

Marquette Advisors



Up to 12,000 new units 2014-201612,000 new units 2014-2016

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Rents & Vacancy by Submarket


Rent GrowthSubmarket Vacancy Avg. Rent Trailing 12 Mos.Downtown Mpls 3.1% $1,422 5.9%Mpls - Out-of-Downtown 2.1% $944 2.9%Downtown St. Paul 7.6% $1,347 12.7%St. Paul - Out-of-Downtown 3.1% $910 0.4%NW Suburbs 2.7% $977 3.5%NC Suburbs 2.1% $922 4.7%NE Suburbs 2.3% $901 2.3%SW Suburbs 2.5% $1,106 2.4%SC Suburbs 1.9% $960 0.4%SE Suburbs 3.3% $982 -3.4%TC's 7 County Metro 2.4% $1,007 2.3%

2014 Q3

Market Rents by Product Type

How many new apartments, and where?

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Marquette Advisors

New Apartments -- What are we building?

• A big splash with amenities.• Design for single-person households• Small, efficient units. Increasing popularity of Studio & “Alcove”

floorplans

• Studio, Alcove, 1BR – 2/3+ of the unit mix today • Fewer 2BRs – 20% today vs. 30% to 40% in past

– Fits Millenial renter profile. Not necessarily empty nesters, with preference for larger 2+ BR floorplans.

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Who is Renting?• Demand for new, luxury product especially is driven by in-migration, job transfers.

– Preference for well located, urban housing

– Higher incomes, often less price sensitivity

• Also renters relocating/”upgrading” their housing w/in metro area.

• Limited cannibalization, however, of existing apartments. And older apartments able to quickly re-lease. Strong economy & job growth are keys to this.

• Millenials having major impact on market

– Now are age 25-35 years old

• Empty nesters too, but in smaller numbers

• Other groups: young families (including immigrants), but larger rental homes and townhomes, rather than apartments

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Population Growth by Age

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•Note growth in ages 25-34 and 35-44 groups. Front end of Millenials aging into their 30’s now. Where will they want to live?•What about boomers/empty nesters?

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Area/Age Cohort Number Pct. Number Pct. Number Pct. Number Pct. Number Pct.

Metro Area0 - 14 580,998 22.4% 691,240 20.2% 715,158 20.0% 110,242 19.0% 23,918 3.5%15 - 24 383,424 13.6% 458,809 13.4% 454,268 12.7% 75,385 19.7% (4,541) -1.0%25 - 34 420,311 15.4% 484,875 14.1% 489,570 13.7% 64,564 15.4% 4,695 1.0%35 - 44 391,324 17.8% 453,471 13.2% 487,757 13.7% 62,147 15.9% 34,286 7.6%45 - 54 440,753 13.7% 494,705 14.4% 458,444 12.8% 53,952 12.2% (36,261) -7.3%55 - 64 326,007 7.6% 429,009 12.5% 464,945 13.0% 103,002 31.6% 35,936 8.4%65 - 74 163,425 4.9% 241,341 7.0% 300,938 8.4% 77,916 47.7% 59,597 24.7%75+ 143,325 4.7% 174,408 5.1% 199,078 5.6% 31,083 21.7% 24,670 14.1%Total 2,849,567 100.0% 3,427,858 100.0% 3,570,158 100.0% 578,291 20.3% 142,300 4.2%M edian Age 34.2

Sources: U.S. Census; ESRI; M arquette Advisors

2010 2014 2019 Change, 2000-2014 Change, 2014-2019

Population Age Distribution, 2010-2018Twin Cities Metro Area

Why rent?• Increasing propensity to rent, rather than buy. Why?

• Lifestyle Factors

– Prefer urban locations (more rental options here than ownership)

– Maintenance-free

– Smaller household (single renters opting for Studio or 1BR living)….may not make sense to buy a larger condo or house

– Design of modern apartments supports socialization – amenities, gathering spaces. Important to Millenials.

– MOBILITY! -- Renting provides mobility. Could I sell my home?

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Why rent?• Economic Factors

– Mobility – resale issue and timing

– Cost factors. Income-qualified, perhaps. But what about savings?

– Down payment requirement. 20%? $80-100,000+ in many cases, especially urban and popular suburban markets.

– Lack of savings – high debt levels

– College debt –

• MN ranks 4th highest nationally.

• 70% have “significant” college debt. Avg. nearly $40,000 per student.

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Twin Cities Market Outlook• Market Rate Apt Construction:

– Construction: +12,000 new units 2014-2016.– Demand: Market absorption 3,000+ units per year.– Expect temporary market vacancy adjustment, but demand generally in line with supply– Vacancy: 2015-2016: 3.8%-4.5% (predict will not exceed 5.0%)

• Demand fundamentals remain strong:– Strong economy: 30,000+ new jobs per year– Employee recruitment/retention key to success of economy. Requires attractive ,

appropriately designed and priced new housing!– Demographics: impact of Millenials.– Rent vs buy decision. Economics & lifestyle factors make renting attractive.– College enrollment trend. 440,000 in MN colleges vs. 350,000 10 years ago!– Avg. college graduate nearly $40k in debt – renting makes sense.

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Marquette Advisors

What’s Next• Downtown/Uptown Minneapolis markets are hot. But what’s next?

• Not all can afford, or want to live in central cities. What about other locations?– Similar location fundamentals apply -- proximity to jobs, goods/services, dining/shopping,

recreation, highway/transit access, walkability – “walk-score”

• Downtown St. Paul becoming more active.

• Light Rail Transit Corridors! Potential for SW-LRT

• What will Millenials want next? First wave of this group aging into early 30’s. What’s next after that Uptown apartment?

Marquette Advisors

Marquette Advisors

twin cities apartment market conditions winter 2014/2015 brent wittenberg – marquette advisors...

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