First, the vacancy rate is the percentage of built units in an area that are currently vacant and for rent.
The keeper of the vacancy rates in Minneapolis and St Paul is a company called Marquette Advisors, who release quarterly reports, which they just did. It’s important to note while their data is not specific to duplexes, triplexes and small apartment buildings, there is generally a correlation between the two.
According to the recently released report, the vacancy report in the first quarter topped 3 percent. The average vacancy rate had been hovering near 2.3 percent for the last five years.
A vacancy rate of 5 percent is considered indicative of a balanced market.
So what does this mean to Minneapolis duplex owners?
That brings up “rent growth”, which is business speak for rent increases.
Rising vacancy rates mean less demand for rental units. This leads to smaller rent increases and, when vacancy rates pass the 5 percent mark, rent concessions from landlords. Think back to “first month free” and “free cable and internet” ads of a decade ago.
Higher vacancy rates mean less cash flow. Less cash flow not only means less money in your pocket, that smaller income stream may contribute to a slowing in the appreciation of the property, and a reduced value when you go to sell it.
With an expected 3900 new market-rate apartments expected to come into the market by year’s end, Marque
tte is predicting the average vacancy rate by year’s end will be somewhere between 3.6 and 3.8 percent, and rise above 4 percent next year.
Rent gains are expected to be moderate this year as well, with increases in the 2.5 – 3 percent range.
None of this means, of course, that the sky is falling. It’s just a subtle shift in the market to bear in mind as you make decisions about improving your property, leasing it, or perhaps, even selling it.
It remains a duplex sellers market in Minneapolis and St Paul. If you are considering selling, it may be a great time to do so.