Even with the new construction, the metro area’s overall vacancy rate was 5.2% in the first quarter of 2024, according to Marquette Advisors. Most submarkets were even tighter, with vacancies below 4%. However, Downtown Minneapolis, adjusting to new supply, recorded a vacancy rate near 7%.

Construction has started to slow, with 7,350 units expected this year and 3,785 in 2025, according to Marquette Advisors. Average rent growth across the metro area, meanwhile, remains healthy at 3.6% year over year in Q1 2024.

Robust Minneapolis workforce housing demand

Workforce housing properties have generally experienced durable cash flows in Minneapolis, Felsot said.

These properties typically don’t offer all the amenities found at a luxury building. But they provide residents safe, comparatively affordable housing, often with easy access to transportation and employment hubs. That helps keep them consistently in demand with renters.

“Often these properties were constructed decades ago when land wasn’t at the premium it is today,” Felsot said. “Over time, they’ve become a much more affordable alternative to newly constructed multifamily properties with extensive amenities.”

Elevated interest rates

The Federal Reserve has held interest rates steady in an effort to bring inflation back to its 2% target, and the timeline for reductions is uncertain. 

Higher interest rates may pose challenges for multifamily investors who took on too much leverage and relied on variable rate loans, Felsot said. Some may be forced to add extra capital when refinancing or selling assets—a scenario that could create opportunities for well-positioned investors with available capital. 

“I’m a strong believer that there is opportunity for multifamily investors in any economic climate, given the size of the asset class,” Felsot said. 

Investors seeking or refinancing apartment loans while interest rates remain elevated may want to explore options that provide flexibility when rate relief arrives.

Apartment floor plan updates

Planning a renovation? Consider whether a unit’s layout makes the best use of the available space, especially at older buildings that weren’t designed with current renter preferences in mind, Felsot said. 

A formal dining room, for instance, may be more attractive to renters when transformed into a larger kitchen with a breakfast nook, a home office or an extra bedroom.   

“We’re seeing owners get creative with space planning to make sure their units’ layout fits what renters are looking for,” he said. 

Managing Minneapolis utility costs

Minneapolis multifamily investors seeking opportunities to lower utility costs may want to consider implementing a ratio utility billing system (RUBS). RUBS is a billing method that lets property owners allocate utility costs to individual units, even if units don’t have their own utility meters.

“It reimburses the property owner, at least partially, for overall utility costs,” Felsot said. “While market acceptance differs from location to location, it’s something that could be considered in higher-inflation environments.”

With RUBS, investors use factors such as the number of residents, water fixtures and appliances in a unit, as well as the unit’s square footage, to figure out what share of the property’s utility bill each unit’s residents should pay. Submetering is another common method for recovering utility costs from renters, but it may not be feasible at all properties.  

Some communities have rules governing RUBS and other utility billing methods, so check local regulations before getting started.