If you're searching for that "one month free" deal on an apartment, shop hard. The Twin Cities apartment market continues tightening as the steep housing downturn turns more homeowners back into renters and has other renters staying put. Landlords don't have to dangle much bait these days. Metro area apartment vacancies sank to a low 3.6 percent in the third quarter with the average rent climbing to $890 a month, up 2.7 percent from a year ago, according to the GVA Marquette Advisors' third-quarter market report out Wednesday. The vacancy rate isn't as low as the late 1990s when it dropped below 2 percent, but it's below the 5 percent mark considered equilibrium.
GVA Marquette said strong demand for small units, such as studios and one-bedrooms, helped drive the increase in average rent. "That's where the bulk of demand seems to be," said GVA Marquette Vice President Brent Wittenberg. The hit to renters' pocketbooks may hurt, but landlords consider the 2.7 percent average increase very modest considering how much more they're paying to operate buildings. "We are still playing catch-up given what's happened with operating costs over that time," Wittenberg said
Lisa Moe, president of Stuart Management Corp. in Bloomington, said her company's operating costs have risen a margin-crimping 5 percent to 7 percent over the past year. Some of that is energy, she said, but it's also higher prices for water and general services such as lawn care and maintenance.
The city of St. Paul raised water prices 4 percent this year and will raise them another 5.7 percent next year, Moe noted.
Jon Segner, president of Dominium Management Services in Plymouth, said the "bigger bang" landlords are seeing is reduced concessions, such as free rents, and lower vacancies.
Both the 3.6 percent vacancy rate and the average rent increase mask many variations from city to city and by type of apartment, Segner noted. Vacancies in downtown St. Paul, for instance, are on the high end at 6.8 percent. A number of suburbs - the Lakeville/Farmington area, Blaine and the Mounds View/Spring Lake Park area - are below 2 percent, according to the report.
Downtown St. Paul still is trying to absorb all the new higher-end apartments in the Upper Landing development along the river. The 344 units in Riverview at Upper Landing were not included in last year's survey, GVA Marquette's Wittenberg said, because they were still too new and would have skewed vacancy rates.
The apartments haven't leased as quickly as hoped. Riverview is now 78 percent pre-leased, said Moe at Stuart Management, which manages the apartments. The units range from $800 one-bedrooms to a $2,300 penthouse. "People are still trying to discover that area for housing," Moe said.
Source: TwinCities.com