Apartment vacancy across the Twin Cities is holding steady, despite a continuing building boom for new apartment projects.
 
The latest “Apartment Trends” report from Minneapolis-based Marquette Advisors reported a rental housing vacancy rate of 2.5 percent at the end of 2013. That’s down slightly from the 2.8 percent vacancy rate reported a year ago.
 
There are signs that the vacancy rate is climbing in downtown Minneapolis, however, which has been ground zero for many new luxury apartment projects. At the end of the fourth quarter, Marquette Advisors reported an apartment vacancy rate of 4 percent in downtown Minneapolis, up from the rate of 1.9 percent seen a year ago.
 
While the downtown rental vacancy rate remains low in the big picture, some market observers have expressed concern about the market being overbuilt as new projects continue to open. The only two parts of the metro that currently report higher vacancy than downtown Minneapolis are Hopkins (4.1 percent) and Woodbury (4.5 percent), according to Marquette Advisors. 

 
The report noted that it has only seen a “modest increase” in downtown Minneapolis apartment vacancy.
 
“Leasing agents report that new apartments in downtown Minneapolis are attracting large numbers of renters who are new to the Twin Cities,” according to the report. “These transplants from other markets view downtown Minneapolis and its new apartment communities as an ideal location for their first residence here.”
 
According to Marquette Advisors, a total of 3,108 new apartment units opened in 2013. More than half of those –1,635 units–were in downtown Minneapolis.
 
An apartment vacancy rate of 5 percent is generally considered the equilibrium point in the market. Higher vacancy rates favor tenants; lower vacancy rates favor landlords. Marquette Advisors reported that the local apartment vacancy rate has been less than 3 percent for nearly three years: 11 consecutive quarters.

In its October issue, Twin Cities Business surveyed the outlook for the local apartment development pipeline, including what factors are driving the apartment boom.
 
Rental rates have been climbing. The average apartment rental rate is now $981 per month, up 2.5 percent from a year ago.
 
But downtown Minneapolis remains the priciest place in the Twin Cities to rent an apartment. The average apartment rental rate in the city is now $1,402 per month, a sharp 9.1 percent uptick from a year ago.