Today’s article in Finance and Commerce reinterates a common thread among today’s rental market in the Twin Cities – decreasing rents and increasing occupancies compared to 2009. The recession has affected all real estate products, including the historically well-performing Twin Cities rental industry that is typically posting vacancies under 5% (equilbrium) and has posted increasing rents year-to-year.
Like the article states, expect a slow recovery for the rental industry. Although there are planned senior, affordable, and student housing developments, I do not expect we will see much market rate product in the pipe-line until banks start lending again.
by Scott Carlson Staff Writer
The Twin Cities’ apartment market is “much improved’’ from last year and appears headed for a rebound by late 2011, industry insiders said Tuesday at a Minnesota Multi Housing Association forum.
“2009 was awful, 2010 is already much improved and 2011 [looks] even better,” said Brent Wittenberg, vice president of GVA Marquette Advisors in Minneapolis.
Wittenberg’s sour assessment of 2009 was partly based on the Twin Cities’ economy posting a loss of 80,000 jobs, nearly the twice the number initially predicted by economists.
Another big reason for a dour 2009: The year-end apartment vacancy rate was 7.3 percent, worse than the projected 6 percent vacancy rate, Wittenberg said during his slide presentation to association members. Rental rates also declined 2.9 percent at the end of 2009, he said.
But for the first four months of 2010, the Twin Cities added 9,100 jobs, and a preliminary report shows the apartment vacancy rate has fallen to 5.4 percent in the second quarter, Wittenberg said. That’s not all good economic news — Wittenberg attributed that drop partly to families who have suffered home foreclosures and are now moving into larger-unit apartments.
Meanwhile, apartment absorption (the number of people occupying apartments) has increased by about 3,200 units for the first half of 2010, Wittenberg said, noting that continued improvement in the apartment market partly hinges on an ongoing uptick in employment.
Given the economy, “We have more renters who are very price-sensitive and are deal shopping,” Wittenberg said. His panelists Brad Kittleson, CSM Corp. vice president of property management; Becky Yonts, senior vice president of marketing and training at Timberland Partners and Steve Schachtman, president at Steven Scott Management — agreed.
“Renters are looking for good price,” Kittleson said. But he and Schachtman added that tenants are also demanding clean and new amenities at their apartment complexes including exercise studios, office rooms, pools and even regular resident activities such as free movies.
Still, “good management and leasing is the key” for attracting and retaining tenants, Kittleson said. For example, two years ago, CSM implemented a program focusing on raising tenant service that it dubbed Encore (Enhancing and Creating Outstanding Resident Experiences).
“We survey residents two times a year,” Kittleson said. “Our results have gone up with each survey.”
Meanwhile, Twin Cities’ apartment rents appear to be stabilizing this year after falling slightly in 2009, Wittenberg said. That’s occurred as some landlords, depending on their type of apartment property, have offered aggressive concessions or reductions on rents or lease terms.
Looking ahead, Wittenberg said the Twin Cities multifamily housing industry is well positioned for a recovery because of the specter of job growth (1.4 percent job growth or about 24,000 jobs as predicted by the Minneapolis Federal Reserve) and the industry not being overbuilt now as in prior recessions.
Wittenberg also believes rental rates could grow 3-5 percent in 2011 if there is limited new construction and tenant demand continues to grow.