Dave Olson, Published December 06 2013
Oil boom, vacancy rates drive F-M apartment building boom
It’s about the same size as a collection of apartment buildings planned for a south Moorhead neighborhood that will result in about 316 apartment units.
Fargo, too, expects to see sprawling apartment complexes go up in the near future.
Mega projects aside, Moorhead and Fargo building permit information shows both cities have set records this year for the number of apartment units approved, with Fargo approving 1,170 and Moorhead 274.
By comparison, Fargo approved 743 units in 2012 and Moorhead approved 60.
So, what’s fueling the boom?
City officials and developers offer a variety of answers to that question, from job growth – some of which is related to North Dakota’s oil boom – to attractive borrowing rates for builders and low vacancy rates in the existing apartment market.
The latter two factors are particularly powerful drivers, said Neal Eriksmoen, whose company, Appraisal Services Inc., conducts periodic surveys of apartment building owners and managers in the Fargo-Moorhead area.
A recent report prepared by Appraisal Services showed apartment vacancy rates of 2.4 percent for Fargo, 4.1 percent for Moorhead, 2.1 percent for West Fargo and 3.4 percent for Dilworth.
The overall apartment vacancy rate for the metro area was 2.6 percent.
For 2013, the metro area is on pace to approve permits for more than 1,600 apartment units. Dilworth is not reflected in that number because the city issued no building permits for apartment units in 2013.
“Low interest rates and a low vacancy rate are going to cause a bunch of development,” Eriksmoen said, adding that high apartment occupancy rates in recent years made increases in rents possible.
But as more apartment units are built, landlords may again start offering incentives to renters and rental rates may start to level out or even fall, Eriksmoen said.
For now, demand for apartments remains strong in Moorhead, said Jon Youness, who heads development and acquisitions for Eagle Ridge Development.
The Fargo company is working to acquire property the city of Moorhead took over from the original developer of Stonemill Estates, located in the area of 44th Avenue and Highway 75 in south Moorhead.
That’s where Eagle Ridge plans to build 316 apartment units of various types over the next few years, with construction to start in the spring.
Eagle Ridge also recently opened a 42-unit apartment complex in the area of 34th Avenue and 18th Street South in Moorhead and is in the process of constructing two more 42-unit buildings in the same area.
Whether it’s young professionals looking to rent one-bedroom apartments, or retired couples eyeing townhouses for a more care-free lifestyle, Youness said there is continued need for additional apartments in Fargo-Moorhead.
“As the population grows, there just ends up being more need for different housing options,” he said. “Not everyone is interested in buying and living in a house.”
On average, the number of apartment units approved in Moorhead from 2002-2012 was about 115 a year, which is less than half the 274 units permitted from January through November of this year.
Moorhead City Planner Kristie Leshovsky said the growth in multifamily housing is consistent with the city’s long-range growth plans, as well as with past housing market studies that projected a demand for such housing from students, professionals, families and seniors.
She said census data show the majority of rental units in Moorhead are one- to two-person households under the age of 34.
Oil boom boosts Fargo
Fargo Planning Director Jim Gilmour said factors such as enrollment growth at North Dakota State University explain part of the demand for apartments in the Fargo area, but he added North Dakota’s Oil Patch is also a factor.
“There’s such a housing shortage in western North Dakota and that demand for housing comes all the way over to Fargo,” Gilmour said, explaining that some drillers and construction workers with jobs in the Oil Patch have families based in the Fargo area, where housing and services such as day care are more affordable and available.
He also said retirees and others in western North Dakota who are fed up with the chaos caused by the oil boom are selling their homes at high prices and moving to the Fargo area.
“Anecdotally we hear of cases like that, but I can’t put a number on it,” Gilmour said.
Gilmour said more companies are moving operations to Fargo or expanding existing facilities in order to service the oil region.
“There’s employment growth because of that,” he said.
Gilmour said one measure of the housing situation in the Oil Patch is the number of apartment units the city of Williston has approved so far in 2013 – 1,501 – which eclipses even Fargo’s 1,170.
West Fargo filling up
The large apartment complex now being built in the area of Veterans Boulevard and Interstate 94 in West Fargo exists in part because of the large Sanford Health medical center going up in the same area, said West Fargo City Planner Larry Weil.
“It’s going to be an upscale apartment building, and they’re going to be looking for retired people, doctors, and so on,” Weil said.
When the city approved a building permit for the Veterans Park apartment complex in late 2012, it boosted the total number of apartment units approved by the city last year to 402.
That’s a large number when you compare it to the 123 apartment units West Fargo approved in 2011, or the 48 approved in 2010. But it’s still far fewer than the 606 apartment units West Fargo approved in 2005.
In 2013, through November, West Fargo has approved 324 new units.
Although Weil believes 2014 will be another strong year for housing in West Fargo, he said the city is nearing its capacity when it comes to the multifamily sector.
“The availability of land is fast approaching its development build-out,” he said.
Readers can reach Forum reporter Dave Olson at (701) 241-5555