Minneapolis’ Inflation Win is Downtown’s Loss


Brian D. Milovich

Managing Principal, Calvera Partners

A recent Bloomberg article noted that Minneapolis is the only metro area in the country where inflation is currently below the Fed’s target of 2.0%. The inflation rate in Minneapolis was tracked at 1.8%, primarily due to low shelter costs. According to the Pew Charitable Trusts, median rents in Minneapolis from February 2017 to February 2023 have only grown 1% compared to 31% for the broader US. Both Bloomberg and Pew attribute the stagnant rent environment to zoning changes that allowed for higher density apartment development in neighborhoods where traditionally single-family homes and duplexes were the main sources of housing. I think that’s only part of the story. 

We own in downtown Minneapolis and have since 2017. New supply coupled with tepid demand has been a killer for rents and occupancy. RealPage noted that the occupancy rate in Minneapolis is more than 2 percentage points below its long-term norm. That’s the biggest drop out of the 50 largest metro areas in the country. Despite virtually no growth in rents and more supply increasing the amount of affordable housing, the Minneapolis City Council continues to try and push rent control. In opposition to his own City Council, Mayor Jacob Frey is quoted as saying, “I can’t tell you how many people were like, ‘Oh, look at all this supply, look at all these just brand new buildings,’ and kind of scoffing at it like this was going to lead to gentrification or rents skyrocketing. The exact opposite has happened.” 

Supply of housing is the biggest contributor to the rise or fall of rents. More supply leads to modest rent growth or even declines. Outsized growth in rent will happen with fewer apartment units built and steady demand. When you combine plenty of new supply with a city still not back to pre-Covid vibrancy, that’s a recipe for virtually no rent growth over a 6-year period! That brings us to demand, the biggest current issue for us as a landlord. Similar to places like San Francisco, Minneapolis is dealing with an image problem in the wake of 2020’s civil unrest and calls to defund the police. Contributing to the problem is a lack of major employers requiring their employees to come back to the office in downtown Minneapolis, even part-time. There are fewer people who want to come downtown for social activities and the daytime worker population is a fraction of what it once was. 

The Minneapolis/St. Paul Business Journal just had a front-page article, Are you there, Target?, where they effectively call-out the Fortune 500 company for seemingly abandoning their role as corporate citizen. Target’s logo and name is everywhere in downtown Minneapolis. It’s on Target Field (Minnesota Twins) and Target Center (Minnesota Timberwolves and Lynx). It’s on billboards, their corporate headquarters, and their downtown store. However, their 7,100 employees are nowhere to be found, and the CEO lives in Siesta Key, Florida. Target isn’t part of the tech industry that emptied out San Francisco due to politics, high costs, and ease of remote work. This is a singular homegrown company that has shown little regard for the health of the city and metro area that has provided so much for it.  

Other Minneapolis-based Fortune 500 companies have come back downtown, at least partially. US Bancorp with 4,300 employees is back three days a week, as is Ameriprise Financial with 4,500 employees. Wells Fargo retains a large presence in Minneapolis with 5,500 employees back in the office three days a week. Unfortunately, Target leaves the biggest hole. As a headquarters location, Target hires many recent undergraduates and MBAs for internships and full-time roles. This segment is the prime renter cohort, and there were apartment buildings informally known to house the young Target set. The rental trends of Target employees can send positive ripples throughout the housing market, and it’s still missing. 

Yes, supply has been a big factor towards cooling inflation in Minneapolis and keeping rents at bay over a six-year period. I recently read that there are now more residents living downtown than pre-Covid. An influx of new supply and lower rents have allowed more people to try living in downtown Minneapolis. That’s fantastic, however, it’s not enough. We need big employers like Target with a stake in the health of Minneapolis to come back. We need new entrants to bet on Minneapolis. We need a city government to produce a compelling story to both businesses and Twin Cities residents to explore downtown in greater numbers. Taylor Swift may have injected Super Bowl-like dollars into the Minneapolis economy, but people aren’t renting apartments because of it. Real, lasting solutions are needed to get Minneapolis back on track. 


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