After healthy growth last year, Minneapolis’ apartment market started 2023 with rents down and vacancies up. Will growth roar back in spring and summer, or could a recession hold it back? Victor Calanog, Ph.D., Commercial Real Estate Economist, shares his take, leveraging data from Moody's Analytics CRE.
Minneapolis rents dipped, vacancies rose in Q1
Apartment performance metrics in Minneapolis weakened in Q1 2023, with asking and effective rents falling 0.3% and 0.5%, respectively, and vacancies rising 20 basis points to 7.3%. Quarterly rent trajectories have been uneven but rose significantly at the end of 2022 to post healthy annual growth figures of just under 5.5%.
Potential recession weighs on multifamily sector
Optimists will therefore wonder: Is the start of 2023’s performance dip simply a reflection of seasonal weakness? Will rent growth roar back in the spring and summer months, when leasing tends to be stronger?
Some caution in the near term is warranted, Calanog says. The probability that the U.S. will tip into a recession in 2023 remains uncomfortably high. If there is a pullback in economic activity, the apartment sector will likely take a hit.
New supply could pose short-term challenges
In the medium- to-long run, the multifamily market in Minneapolis is expected to perform well, with rent growth forecasts in the mid- to high 3% range. Where are the near-term risks?
Watch out for the Minneapolis submarket, which includes downtown Minneapolis and is expected to have over 2,000 units come online in 2022 and 2023, according to a Moody's forecast. That represents about 25% of the two-year total for new apartment construction in the metro area.
Prudent apartment investors will want to prepare for a volatile 12 months ahead.
By the editorial team at Story by J.P. Morgan
What’s the multifamily outlook in other U.S. metro markets? Watch our mid-2023 analyses for more cities across the country.
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