HousingLink Blog

Oct 16, 2012, 07:20 AM by Unknown

Year-over-year rent growth in the apartment and shadow markets was unimpressive when looking at the Twin Cities as a whole.

In the apartment market:

One bedrooms remained flat ($711)
Two bedrooms were up 1% ($900)
Three bedrooms jumped 5% ($1,260)

In the shadow market:

One bedrooms rose 6% ($850)
Two bedrooms rose 2% ($1,125)
Three bedrooms rose 2% ($1,325)

Things get much more compelling when you look at individual areas. Consider southwest Minneapolis apartment rents:

Two bedrooms were up 36% over the previous year! ($1,350 compared to $995) Three bedrooms were up 11% ($1,500 compared to $1,350)

To put that in perspective, over the course of a year, the median rent for a two bedroom apartment in Southwest Minneapolis went as high as the median rent for a three bedroom just one year earlier. Wow.

While apartments remained strong throughout Minneapolis and St. Paul, rents declined in many suburbs. This was likely due to shadow market pressure. Consider Plymouth: Two bedroom apartments in 2011 Q3 were $1,117, but dropped  11% to $995 by Q3 2012. Three bedroom apartments in Plymouth had a similar story. In 2011 Q3 they were $1,600. In 2012 Q4? A 15% drop to $1,358. How did that happen in this rental boom? It is likely the impact of the Shadow Market.

For the past year, Shadow market (largely single family homes and townhomes) three bedroom rentals in Plymouth hovered around $1,600. With a greater number of shadow market openings to choose from among both two and three bedrooms in Plymouth, apartment rents couldn't keep pace with the single family home, townhome, and condo rentals (and inventory) in Plymouth.

Similar stories played out in other suburbs (particularly with three bedroom rentals) like Eagan, Eden Prairie, Edina, Hopkins, Inver Grove Heights, Lakeville, Maplewood, Minnetonka, St Louis Park (two bedroom rents impacted in this case), Wayzata, Mound, and Woodbury. In each of these areas the shadow market appeared to put a ceiling on apartment rents, causing year-over-year declines.

This shows the importance of gaining insight into shadow market rentals in the areas where you have properties. Thanks for subscribing to the MADACS award winning Twin Cities Rental Revue!