Led by strong demand for suburban rentals, apartments are being leased at an especially robust pace across the Twin Cities metro, with a record year in sight.

Rents are rising, but only modestly compared to the rate of activity.

That's according to a third-quarter report from Marquette Advisors, which tracks rents and vacancy rates for more than 160,000 market-rate apartments across the seven-county metro area.

The group said that through the end of September, 5,750 new leases were signed. That's just a few hundred units short of the full-year record, set in 2010, of 6,400 units absorbed, a figure that doesn't include renewals.

Builders finished 5,163 new apartments in the first nine months of the year. Even so, the average vacancy rate across the metro was 5%, a level that's viewed as a balanced market.

The average monthly rent was $1,320 at the end of September, up 2.1% from a year earlier. Those figures include only market-rate rentals in buildings with more than 10 units.

The Twin Cities is among a growing number of major metropolitan areas that have seen a sudden increase in demand for rentals this year.

In October, the average asking rent nationwide increased nearly 14%, according to a new report from Yardi Matrix. In the Twin Cities, rent increases were the lowest of the 30 biggest metros tracked by the group.

In the central parts of Minneapolis and St. Paul, which earlier this month passed controversial rent control measures aimed at curbing rent increases, market fundamentals lagged the rest of the metro.

In Minneapolis, the average vacancy remained flat at about 5% with rents increasing 1.7%. And in St. Paul, the market has tilted in favor of renters with the average vacancy rate increasing 1.5% to 5.3% while rents remained flat. Both figures exclude new buildings that are still being leased and income-restricted rentals.

Twin Cities property owners say demand for rentals is stronger in many suburbs than both downtowns. Property managers in the central business districts of both cities are offering concessions, such as a month or two of free rent or parking.

Still, the situation in downtown Minneapolis has improved slightly. So far this year more than 800 units have been absorbed in downtown Minneapolis with much of those gains coming from buildings in the North Loop neighborhood.

The average vacancy rate in downtown Minneapolis was 9.3% and in downtown St. Paul 8.8%, including new buildings that are still in the initial lease-up phase.

Brent Wittenberg, vice president for Marquette, said in a statement that there's a strong correlation between job growth and demand for rentals. He also said the tight housing market has been a key factor as would-be buyers sign apartment leases instead. Low mortgage rates are converting many renters into homeowners.

"While this number is significant," Wittenberg said in a statement. "There are many more renters who continue to remain in the rental market due to the very limited supply of homes available for purchase, extremely competitive market conditions and rising prices."

Brenda Hvambsal, vice president of marketing for Steven Scott Management, said the company's average vacancy rate is tracking on par with the metro-area wide average of 5%.

"Some of our properties are a little better occupied and some are worse," she said. "When they are not performing well in most locations it is due to a unit size problem (too many of one type)."

She said the North Loop and Northeast neighborhoods in Minneapolis are seeing gains and that the company is involved in a lease-up in the Cathedral Hill neighborhood of St. Paul that performed very well.

She said the company has been handling leasing for the Viridium, a 139-unit building in the North Loop neighborhood of Minneapolis that opened in March. It is now 90% leased — ahead of projects that were revised once the pandemic struck.

She said the company offered some concessions, primarily on studio units, which had the highest vacancy rate of any unit size during the third quarter. The average vacancy rate for studios across the metro increased nearly two percentage points to 6.5%.

"They are still in use on studios as that is pretty much the unit type we have left," Hvambsal said. "This has been certainly a flip in our market ... I guess the pipeline has caught up with the demand for that unit size."