If you’re looking for a rental in the Twin Cities, this could be your golden opportunity. The current rental market is in a brief pause, offering renters a chance to find more options at reasonable prices. However, this calm period won’t last long. Let’s dive into what’s happening in the Twin Cities rental market and how you can take advantage of it.

A Slowdown in Apartment Demand – But Not for Long

Over the past few months, demand for apartments has cooled slightly compared to earlier this year, when units were being rented out at a rapid pace. Developers are working hard to complete thousands of new apartments, but after these projects are finished, construction is expected to slow down significantly.

This slowdown in construction is a result of high borrowing and building costs, forcing many developers to put their plans on hold. While the current lull might offer some breathing room for renters, experts warn that competition for available apartments will heat up soon. This increase in competition is likely to drive up rents, making now a great time to secure a lease before prices climb further.

Vacancy Rates and Rent Trends Across the Metro

Despite a quieter rental market this fall, vacancy rates have only risen slightly. In the third quarter, the average vacancy rate across the Twin Cities metro was 4.4%, up only a fraction from earlier in the year. A vacancy rate of 5% is generally considered balanced between supply and demand, but the Twin Cities has remained below this benchmark for years.

This tight market has kept upward pressure on rents. The average rent across the metro area is now $1,514, reflecting a 3.7% increase compared to last year. Suburban areas like St. Anthony and Mounds View are experiencing even steeper rent hikes, as new buildings in these areas attract renters willing to pay higher prices.

Urban Areas See Growing Demand

Minneapolis and St. Paul are also seeing changes in their rental markets. In St. Paul, the city’s rent control ordinance has slowed rent increases to 2.7% over the past year, but this rate still outpaces Minneapolis, where rents rose by about 1.7%. Downtown Minneapolis, which saw a drop in rental demand during the pandemic, is bouncing back. So far this year, 920 units have been rented out in the downtown area, with another 1,642 new units expected to open in 2024.

Vacancy rates in downtown Minneapolis have improved significantly. When new buildings still in their initial lease-up phases are excluded, the vacancy rate was just 5.5% in the third quarter, a big improvement from the 7.7% peak seen in 2020.

Developers Face Tough Challenges

The slowdown in new apartment construction is largely due to high costs. Borrowing money has become more expensive, and construction costs are near record highs. These challenges have forced many developers to shelve their plans.

In 2022, the Twin Cities metro saw a record 9,995 new apartment units built, but that number is expected to drop dramatically. Only 7,200 market-rate units are anticipated in 2024, and by 2025, that figure could fall to just 2,800. This dwindling supply is likely to increase competition among renters and push rents even higher in the coming years.

Even now, the number of new apartments being built is a fraction of what’s needed. For example, in October, permits were issued for just 354 new multifamily units across the metro, marking the first year-over-year increase in permits since February. However, this is far below the level of construction seen in recent years.

Shifting Trends in Downtown Rentals

Downtown Minneapolis is experiencing a resurgence, attracting a new type of renter. Many people moving into downtown are empty nesters or those looking to downsize from larger homes in the suburbs. Luxury apartments, like the O2 Tower, are especially popular. At O2, which features rents averaging $2,700 per month, 72 of its 240 units were leased just weeks after the building opened in September.

The Mill District neighborhood, in particular, is becoming a hotspot. New restaurants and a vibrant atmosphere have drawn more people to the area. Buildings in the neighborhood now report occupancy rates of 97%. Incentives like free rent or move-in discounts, which were common during the pandemic, are becoming rare as demand continues to grow.

What This Means for Renters

The Twin Cities rental market is at a turning point. While demand has softened slightly in recent months, a combination of high construction costs and a limited supply of new apartments means rents are expected to rise significantly shortly.

If you’re considering renting in the Twin Cities, acting now could help you secure a lease before competition and prices increase. With fewer new apartments on the horizon and strong demand continuing, the current market offers a rare chance for renters to find better deals. Don’t wait too long—this window of opportunity may close sooner than you think.