Affordable Luxury in the Multi-family Market

With vacancy rates down, rental rated up, and dollar value transactions soaring at the the end of 2016, forecasters see good times ahead in Minneapolis for investment in the apartment market. They also see a definite swing toward value-add development, with a continued demand for more apartment units despite record-breaking volume over the previous three quarters.

Trends in Supply & Demand

Local trends for Minneapolis-St. Paul-Bloomington mirror what's happening throughout the country, with apartment supply in 2016 placing the area 34th among the nation's top 50 markets. Houston and Dallas-Fort Worth continue to rank as the country's hotspots, with Austin, Texas not far behind. New construction is expected to reach record levels once again.

Real estate professionals see the growth of the apartment market demand tied to Millennial preference for an urban lifestyle and that age group's continuing resistance to being locked into a mortgage as much as it has become an economic necessity for some due to hard-to-get mortgage loans. Even though rents are rising at an unprecedented rate, the growth of the apartment market continues.

In the Twin Cities, although new and mid-rise apartment development is not unknown, the renovation of existing buildings also adds to the healthy multi-family investment scene. Popular areas continue to be downtown Minneapolis and St. Louis Park, along with University neighborhoods and Uptown. Central St. Paul saw a surge of completions in 2014, and the growth in West St. Paul came in 2016. Total number of units under construction has dropped from the peak seen two to three years ago, but deliveries continue at about the same pace.

What Do Renters Want?

This area benefits from high employment numbers, as well as consistently higher than average education and earnings levels. Today's apartment dwellers want "more and better" when it comes to amenities as well. A 2016 research and forecast report prepared by Collier's International speaks of a transition to the value-add focus as a driving factor for sale activity, along with a "more limited capital pipeline" for new development.

So, if you're looking for investment success in the multi-family market, what is going to appeal to prospective tenants?

The answer in many other hot markets is luxury amenities. Because of steeply rising costs in places like Seattle, San Francisco and Boston, renters are more amenable to smaller units, but they still want their creature comforts. And those include such varied offerings as secure bike and stroller "garages," package delivery lockers (even including refrigerated storage in some cases) to accommodate online shopping preferences, building-wide Wi-Fi and/or business centers to allow "work from home" arrangements, comfortable lobbies or public spaces, private outdoor courtyards, and rooftop gardens.

Pools, spas and exercise rooms are always a draw, and energy-saving eco-friendly features are important to most renters, who tend to view adherence to green principles with favor. "Green leases" in some markets enlist tenants in a commitment to use public transportation, reduce consumption of electricity and water, and embrace the "sustainable lifestyle." Technology and greater control over the personal environment is expected to continue to be a prime consideration, even if it comes at a higher price.

Renters nationwide, perhaps not so surprisingly after all, have remarkably similar wants and concerns. If you're an investor in that part of the real estate market, you'll want to pay attention to what they're saying.