Apartment Building & Grand Forks

Pretty much anytime I give a talk or go on to KNOX radio I get questions about the pace of apartment building in Grand Forks. People believe fundamentals do not justify the extent to which construction currently occurs. I generally agree and think there are a few reasons behind it. This article from the Wall Street Journal seems to indicate the local circumstances may just be part of a larger national trend.

Nationally rents were increasing and vacancies were low, and there was not an addition of new supply. According to the article, new unit construction was at a 13-year high last year. So there are some market fundamentals making profiting from new apartments more difficult in the near term. The best part of the article though is that so much is driven by local issues in housing markets. In particular, if there is a preference for amenities in the new units, if the new units are in the desirable part of town, then demand may be high enough to justify higher rents and new construction.

I still think we will end up with more units than the current market will bear, leading to either lower rents or at least lower growth of rents in the near term. Local market fundamentals (such as declining labor force) and statewide dynamics from lower oil prices do not make for an overwhelmingly positive outlook for the local apartment market.

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