MINNEAPOLIS—The multifamily market in much of the US has been soaring as millennial-aged people have increasingly decided to put off buying homes. Instead, many now want to pay rent on units in urban core areas. In addition, many boomers have followed them into the cities in order to establish second-homes, or perhaps primary residences that won't require the upkeep that suburban houses need. And although this trend has blossomed in many metro areas, few regions have experienced the level of economic growth recently seen in the Twin Cities, and as a result, its multifamily market has outpaced most others in both demand and new development.

Even though developers have added more than 13,000 multifamily units to the region since 2013, a tremendous level of demand remains, according to a new report just published by Minneapolis-based NAI Everest. Vacancy rates in the Twin Cities averaged just 2.3% in the third quarter, the researchers find. The non-downtown St. Paul submarket had, at 1.4%, the lowest rate in the region. Downtown Minneapolis vacancy rates averaged 6.4% and downtown St. Paul rates averaged 2.8%. "The higher than average vacancy rates in the downtown areas is primarily due to the large volume of new units delivered that are still in lease-up."

And the massive number of units delivered has not stopped a solid escalation in the metro's rental rates, which increased an average of 5.7% year-over-year, according to NAI Everest. The largest increases were the 8.1% boost for non-downtown Minneapolis, and the 6.8% for downtown St. Paul. Absorption totaled 1,173 units, while developers delivered another 1,276 units in the third quarter.