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MINNEAPOLIS-Two recent reports on the multifamily market conclude that development is “blazing hot” while vacancy rates remain low. However, it predicts vacancies will rise as the new projects come on line.

A new report from Bloomington-based United Properties points out that the area’s population growth is fueling demand for multifamily residential housing, with no peak in sight. Between 1990 and 2000, metro area population grew by 353,000 to almost 2.7 million people.

The current vacancy rate is hovering around 2.2%, according to a second quarter market survey by GVA Marquette Advisors, a Minneapolis-based commercial real estate firm. The United report puts the vacancy rate at about 2.5%.

Moreover, the vacancy rate for all types of housing is less than 1% in the metro area–the lowest in the country, United says. Cities such as Minneapolis and St. Paul are aggressively pursuing new multifamily development. Suburban communities such asPlymouth, Eden Prairie, Eagan and Woodbury are following suit. In late June, Minnesota Gov. Jesse Ventura signed into law legislation authorizing a 25% reduction on property taxes on apartment buildings–a move that may well trigger a new surgein construction in the Twin Cities.

A number of new multifamily projects are being built as rents are rising to support new construction, says the GVA Marquette report.

The average monthly rent for the Twin Cities area rose slightly to $838 in the second quarter from $830 in the first. Rents are likely to see a more substantial increase in the third quarter.

The report details the multifamily housing building permits by city, using information compiled from the Metropolitan Council. The list is led by Apple Valley with 212 units, followed by Eden Prairie (194), Minneapolis (105), Plymouth (77), Columbia Heights (72), Maple Grove (68), White Bear Lake (62), Chaska (58) and Shakopee (52).

As a result, a slight increase in the vacancy rate is probable for the third quarter as the projects lease up.

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