The COVID-19 pandemic keeps dragging on. And as it does so, commercial real estate developers continue to adapt to the challenges this pandemic throws at them. But one commercial sector has remained resilient throughout the pandemic, multifamily. And as 2022 arrives, all signs point to demand and development activity remaining high for the apartment industry.
What’s behind the strength of this sector? We recently spoke with Nick Murnane, senior director with the Minneapolis office of Opus Development Group about the resilient nature of the multifamily sector both in the Twin Cities area and across the country. Here is what he had to say.
Demand for multifamily space has remained high throughout the pandemic in the Twin Cities market. What is behind the strength of this sector?
Nick Murnane: Several factors play into why multifamily is so strong here. You are seeing the young professionals who still want that live/work/play environment. They want to live in the active neighborhoods. That’s why areas like the North Loop neighborhood in Minneapolis are thriving.
In addition, the housing market is incredibly competitive today. There is a ton of demand for single-family homes and a low supply. Houses are selling fast with above-market offers and multiple offers. That is keeping some of the renters in apartments longer than they had planned.
Specific to the pandemic, multifamily has seen a lot of the same challenges as any sector has in the Twin Cities. At the start of the pandemic, we saw an increase in vacancies, an increase in concessions and late rent payments. But the market has since rebounded well. These are communities that people live in for specific reasons. They want to stay in these communities, so they are paying their rents. The multifamily market has rebounded well since the start of the pandemic.
You mentioned rent payments. Are you surprised that renters have, for the most part, continued paying their monthly rents throughout the pandemic?
Murnane: We have worked with a handful of residents who were struggling. But overall, people have been paying their rents on time. The ability people have to work from home has helped with that. People have had to adapt and learn how to work from an at-home environment. But they have been able to continue working and make their rent payments.
Have you seen any impact on the multifamily market from the Omicron variant?
Murnane: Not yet. But we do monitor any variant of COVID and act accordingly. If we need to close amenity spaces, we will do that. But we have great community managers. They are doing a great job of making people feel safe in our buildings. These are communities. The amenities are part of the reason why people choose to live there. Keeping everyone safe is our top priority, but we also want to keep those amenities available if we can.
Are vacancies low now in your company’s apartment developments?
Murnane: We have seen a nice rebound. It is submarket-specific. The North Loop of Minneapolis is seeing a lot of traffic and enjoying a solid rebound. We have a project in the North Loop, the Vesi, that is seeing a tremendous amount of activity and a strong lease-up. On the other hand, in the Twin Cities’ CBD and urban core, activity continues to be slower. There are more concessions in those buildings. The lack of workers in downtown Minneapolis and St. Paul is contributing to that. There is a need to get the workforce back downtown. That is taking longer than anyone expected. Because of that, we continue to see a little slowdown in the urban areas as opposed to the activity we are seeing in the first-ring suburbs.
Is downtown Minneapolis still quieter than normal?
Murnane: We still have a lot of the larger employers in downtown opting for a work-from-home option. There has not yet been a full return of the workforce in downtown. Some employees have come back, but not to the levels we need to see for the commercial businesses and multifamily projects in the urban core.
How high is multifamily demand in the first-ring suburbs?
Murnane: For the first time in a while, suburban projects have a little bit of an edge over urban ones. A lot of projects are being delivered to the first-ring suburbs, but we are seeing solid absorption of those units. A large portion of people are able to work from home. They want to be close to the urban core, but they don’t need to be in the CBD downtown. They want to work from home but still have quick access to entertainment areas.
When renters are looking at new apartment projects, what amenities do they want?
Murnane: The number-one thing is again related to working from home. They want spaces that can be used for entertaining as well as working from home. Does this space work at 2 on a Tuesday afternoon but also on a Friday at 9 p.m.? Spaces have to function as a workspace during the week and an entertainment area during the weekends.
We are adding amenity spaces in our new buildings that are also work-from-home areas. There are tables and breakout areas and booths that people can work in. We are adding small conference rooms. If they need to make a call, they can jump into one of those small conference rooms.
Are there any new multifamily projects that Opus is working on that you’d want to mention?
Murnane: We have a new project in St. Louis Park that we just broke ground on last week. It’s a 250-unit, market-rate apartment near the light rail line. It’s a quick train ride to downtown Minneapolis. We are excited about that one. We are excited to deliver that project. It is a transit-oriented development in a great community close to Minneapolis.
We also have the Vesi in the North Loop neighborhood that just got stabilized. That opened a year ago and we are working steadily through the lease-up period.
Do you think demand will remain strong for multifamily developments throughout 2022?
Murnane: Well-executed, well-located projects will continue to do well. There is a ton of investor demand for multifamily. Over the next 12 months, that demand will continue to increase.
About Real Estate Intelligent Marketing (REIM):
REI Marketing is an innovative Real Estate Marketing Company that offers distinctive real estate services to developers and multifamily investors. We are a vibrant, dedicated team of industry professionals with international experience in marketing and multifamily investment.