Minneapolis 2023 apartment market outlook

Thousands of new units came online in Minneapolis in 2020 and 2021. That has contributed to weaker apartment market performance in 2022, with rents falling 1.1% in the third quarter. Victor Calanog, Head of Commercial Real Estate Economics at Moody’s Analytics, shares his analysis.

‘Supply glut’ affecting Minneapolis multifamily metrics

Apartment performance metrics for the Minneapolis market have become consistently weaker over the course of 2022. Effective rents fell 1.1% in the third quarter after declining 0.2% in the second quarter, according to Moody’s Analytics CRE. Vacancies have hovered at a relatively high 6.9% throughout the year — that’s up 20 to 30 basis points from 2021 averages and 230 basis points above pre-pandemic vacancies of 4.6%.

Part of what’s happening is a healthy supply pipeline. Throughout 2020 and 2021, 6,000 to 7,000 units continued to come online annually. And as expectations of economic growth pulled back throughout 2022 and demand weakened, the classic “supply glut” issue for real estate started coming to the fore. 

West submarket particularly weak

Neighborhoods like the West submarket are struggling more than others: Year-over-year effective rent growth decelerated to -0.5% in the third quarter of 2022. This is not only the weakest among the nine submarkets in the Minneapolis metro, it’s the second weakest performance among the 846 submarkets covered by Moody’s.  

Rent regulations add to the chill

Baseline forecasts still suggest that rent growth may be in the 2% to 3% range for 2023, but that may be revised downward. The local policy environment in Minneapolis also has cast a bit of a chill on investor and landlord prospects. With rent regulations imposed, fewer buildings are being brought to market, and forecasts suggest a drop of about 20% in deliveries between 2021 and 2022. Many eyes are on Minneapolis as the economy enters what could be an inflection point.

By the editorial team at Story by J.P. Morgan