Nice article from Jim Buchta at the Star Tribune. The story here in Minneapolis mirrors the trend across the country. Delivery of new housing units (for both Multifamily and Single Family) has begun to slow, and (for MF) vacancy rates are ticking down; by the end of June, the Minneapolis MSA posted an average rate of 3.9%.
It is reasonable to assume that as this current wave of supply is absorbed, we're at or near the tipping point to where, without a boost in supply, rent growth will again accelerate.
Unfortunately, challenges to new development persist, and haven't changed much in the past two years. The fewer projects breaking ground today, the more rent growth accelerates tomorrow.
Because of the market fundamentals, investor appetite for existing properties remains strong, keeping valuations high. Investors rightly demand return premiums for higher-risk new development as opposed to stabilized properties, but elevated project costs continue to eat into returns on new construction.
Interest rate cuts ?? will help, but won't be a magic bullet. New developments will continue to be challenged while costs stabilize and the market waits for property operating incomes to offer an appropriate return on cost over stabilized product cap rates. Until then, I'd expect to see higher (than historical average) rent growth.
#multifamily #development #rentgrowth #realestate
