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:

Blaine
Edina
Inver Grove Heights/Mendota/Lilydale
New Hope
Woodbury

Last quarter it happened in:

Eagan
Eden Prairie
Edina
Hopkins
Inver Grove Heights/Mendota/Lilydale
Lakeville
Maplewood
Minnetonka
Wayzata/Mound
Woodbury

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.

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.