Construction booming, but apartments hard to find

From his office in downtown Minneapolis, Brent Wittenberg can see the region's apartment boom take shape just by looking out of his 13th floor window.

The Nic on Fifth, a 253-unit luxury apartment building a block away reportedly sold for more than $100 million last fall just after residents moved in — an unheard of figure in Twin Cities residential real estate. Another luxury tower — dubbed 4Marq — is under construction on the same block.

Builders added 4,470 market-rate units in the Twin Cities in 2014 and Wittenberg expects another 3,500 to be move-in ready this year. Renters are signing leases as soon as the paint dries.

Still, all the construction has barely moved the needle on vacancy rates in the Twin Cities. They stood at 2.9 percent at year's end, up only slightly from a year prior. Over the same period, average monthly rent rose 4 percent and now tops $1,000.

As a result, anyone looking for an apartment in the Twin Cities likely will find fewer options and higher rents than they'd hoped. The metro area has one of the tightest rental housing markets in the nation.

When it comes to high-end apartments, Wittenberg can see a boom playing out in the data he keeps on his computer. Posh downtown apartments featuring dog runs, yoga studios, and concierge service may grab the most attention.

But rentals in all price ranges are in short supply across the Twin Cities, said Wittenberg, who tracks rental trends for the real estate consulting firm Marquette Advisors.

"I think that the demand fundamentals for apartments remain strong throughout the region," he said. "And we do not project a significant uptick in vacancy for the metro area as a whole."

Low vacancy rates and rising rents may be a landlord's dream, but they can be a nightmare for apartment seekers like Hilary Hannon, an attorney who has relocated twice in the last four years.

Hannon, 28, said she had little trouble finding an apartment in St. Paul when she was in law school back in 2011. She moved to Uptown Minneapolis with her sister two years later. She is back in the rental market today, looking for a place with her boyfriend.

So far, Hannon said, their search has been frustrating.

"One thing that I've experienced this round that I didn't experience last time is that I've contacted listings on Craigslist, and some people don't even get back to us at all," she said. "I send a fairly well-written articulate email with some information in it and no response back."

Hannon, who is looking for a basic two-bedroom apartment in the Uptown area, said the landlords who have called back "drop off the map" when she tries to arrange a meeting. While a number of new buildings have opened there recently, Hannon prefers something historic in a lower price range.

"We're hoping to keep it under $1,500," she said. "We're willing to push to $1,600 if we have to."

Hannon may have to pay more or settle for less. Marquette Advisors data show the vacancy rate in the $1,400- to 1,500-price range dropped from nearly 5 percent in late 2013 to just 3 percent a year later. That was the biggest decline among the price brackets Marquette tracks.

Much of the demand is driven by 20-somethings like Hilary Hannon, said Tyler Allen, a research analyst at the real estate firm DTZ in Minneapolis. Many now have the means to strike out on their own, but aren't ready to buy.

"After leaving college, they have some limiting factors on them being able to buy a home," Allen said. "The job market was doing poorly. So they weren't able to save up like they have in past generations."

Another factor, Allen said, is the Twin Cities' robust job market. The region has the lowest unemployment rate of any major metropolitan area.

Besides that, in the wake of the housing bubble more people are renting. Last week the National Association of Realtors reported the number of renter households in the Twin Cities rose 17.6 percent in the five years after the Great Recession ended in mid-2009. At the same time, the number of owner households dropped 12 percent.

The report also found incomes — at least for people aged 25 to 44 in the metro area — are more than keeping pace with rising rents. That's not the case in many other cities.

Even though there are more apartments expected on the market this year, there are no signs that rents will go down and vacancy rates will go up.