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  • Twin Cities Rents Remain Strong Overall

    The fourth quarter of 2012 showed the continuation of a strong rent growth in the Twin Cities apartment and shadow markets. One bedroom units in the apartment market were up 10% from the previous year, with a median rent of $790. Two bedrooms rose 8% to $960, and three bedrooms climbed 5% to $1,250. In the shadow market one bedroom units rose 3% to $835, two bedrooms grew 5% to $1,100, and three bedrooms nudged 1% higher to $1,300.

    In the past two quarters in this report, we have started to see an interesting development with three bedroom apartments in the suburbs. In a number of cases rents are declining year-over-year (many times by 10% or more!) when the median rent for a three bedroom apartment a year ago was higher than a three bedroom shadow market rental in the same region. Examples of this trend in this quarters report:

    Inver Grove Heights/Mendota/Lilydale
    New Hope

    Last quarter it happened in:

    Eden Prairie
    Inver Grove Heights/Mendota/Lilydale

    The result of the declining apartment rents are that in most cases the rents are “corrected” to the place where three bedroom apartments are less than three bedroom shadow market units.

    This trend may also present an opportunity for apartment owners and managers of three bedrooms throughout the Twin Cities suburbs. There were a number of regions where three bedroom apartments a year ago were renting significantly lower than three bedroom shadow market rentals. This allowed for substantial rent increases. Examples of this trend in this quarter's Twin Cities Rental Revue:

    Bloomington (up 17.6%)
    Chaska (up 15%)
    Coon Rapids (up 6.7%)
    Fridley/Columbia Heights (up 9.2%)
    Hopkins (up 17.4/%)
    Minnetonka (up 16.3%)
    Roseville (up 19%),

    This demonstrates the importance of tracking shadow market rents to help determine whether or not you can expect or plan for rent decreases or increases in specific regions. For those not currently subscribing to Twin Cities Rental Revue, go here for more information so you aren't missing out on this vital rental market data, or email jdye@housinglink.org.

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  • Apartment Rents Close the Gap

    What a difference three quarters makes! When we first started collecting this data, shadow market rents significantly outpaced apartments. This wasn't a surprise because it made logical sense to most that a renter is willing to pay more for a 3 bedroom single-family home than a 3 bedroom apartment. However, that logic may no longer matter in this hot rental market! Consider this:

    One Bedroom Units

    In 2011 Q3, the median rent for a shadow market 1 bedroom was $91 higher than an apartment ($800 vs. $709).

    In 2012 Q2,  the median rent for a shadow market 1 bedroom was $5 less than an apartment ($775 vs. $780).

    Two Bedroom Units

    In 2011 Q3, the median rent for a shadow market 2 bedroom was $204 higher than an apartment ($1,099 vs. $895).

    In 2012 Q2, the median rent for a shadow market 2 bedroom was $100 higher than an apartment ($1075 vs. $975).

    Three Bedroom Units

    In 2011 Q3, the median rent for a shadow market 3 bedroom was $100 higher than an apartment ($1,300 vs. $1,200).

    In 2012 Q2, the median rent for a shadow market 3 bedroom was $5 higher than an apartment ($1, 300 vs. $1,295).

    Interesting Trends Worth Noting:

    1. Shadow market rents have gone down or remained flat over the past three quarters.

    2. Apartment rents continue to climb:

    • 1 Bedrooms up 10%
    • 2 Bedrooms up 9%
    • 3 Bedrooms up 8%

    Why are Shadow Market Rents Flat or Down?
    The first place we looked for an answer within the data was in building type. Were there fewer single-family home rentals and more townhomes and duplexes that caused the rents to remain flat? No. Single family homes made up 28% of the rental market in 2011 Q3, and 27% in 2012 Q2.

    The second place we looked was in total number of listings advertised. Two and three bedrooms had a similar number of listings in 2011 Q3 and 2012 Q2. One bedrooms had about 600 more in 2012 Q2. It is possible that increased competition has suppressed one bedroom rents in the shadow market. Something else is likely in play as well.

    The motivations of many shadow market landlords are different. Their concerns are more about covering the mortgage than increasing profit. This particularly comes into play at lease renewal. A shadow market landlord may lack the capacity (and cash flow!) to raise the rent, find a new renter, cover turnover costs, etc. As a result, rents remain flat, while the professional operators of apartment communities have the capacity to raise rents, turnover units, and maximize cash flow in this hot rental market.

    What are your thoughts? Write a comment below!

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  • The scope of the Shadow Market (condos, duplexes, houses, townhomes)

    The scope of the shadow rental market of condos, duplexes, houses, and townhomes was largely a mystery until now. The quarter three Twin Cities Rental Revue provided unique insight into shadow market activity.

    Would you have guessed that only 38%% of listed openings in the Twin Cities were apartments and 62% were shadow market? Here is the breakdown of Q3 openings by building type:

    • Apartments - 38%
    • Single Family - 28%
    • Townhomes - 15%
    • Duplexes - 12%
    • Condos - 6%

    These numbers indicate that the shadow market is a force in rental housing, and  raises the question about the true availability of rental housing in this market. News stories indicate that vacancy is declining, but those numbers don't account for shadow market units. It will be interesting to track the number of shadow market openings over time. 

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