By Louis Suarez, Misty Bowe and Brian Bruggeman, Colliers The Twin Cities medical real estate market has experienced many different phases over the last few years, reflecting the region’s journey toward post-pandemic recovery. Currently, this sector is experiencing a notable shift that is fueled by rising vacancy rates for on-campus hospital properties contrasted with a low vacancy rate of 4.9 percent for off-campus medical buildings. This shift is significantly influenced by the push to outpatient surgery centers, ongoing financial pressures and consolidation trends. Additionally, experts in this region are predicting a scarcity of new medical building supply in 2024, which is expected to exert ongoing pressure on rental rates for existing medical office space, despite the stabilization of interest rates that is anticipated to come later this year. As of the fourth quarter of 2023, the current construction pipeline consists of a mere 84,000 square feet, all of which is spoken for with no additional supply projected to come to market in the next year, which is a nearly 80 percent decrease year-over-year. The dramatic increase in interest rates, rising construction costs and capital constraints have pushed asking rents for new proposed projects to well above $30 per square foot …
By Tricia Pitchford and Amy Senn, Mid-America Real Estate A strong regional economy continues to propel the retail real estate market in Minneapolis heading into the fall. Unemployment remains lower than the national average, though up from last year’s remarkable sub-2 percent. New jobs are being created at a nice clip. At the same time, retail real estate space is tight, with limited new construction. Well-located spaces are being re-tenanted quickly. The same is generally true for B and C locations. Rents are flat to increasing. Higher construction costs continue to hamper tenant expansion. Although the macroeconomy is slowing, consumers are proving resilient, with a large appetite (pun intended) for quick-service restaurants and personal services, in particular. Where’s the most action? Suburban trade areas are seeing most of the activity across the metro area. Maple Grove, Woodbury, Edina and Roseville are among the strongest submarkets. A couple of urban trade areas, namely the North Loop warehouse district and Northeast Minneapolis, stand out for their growing appeal as arts, entertainment and dining districts. (Yes, we have hipsters in the Twin Cities.) Generally infill and redevelopment opportunities are more time-consuming and costly to execute than ground-up development, but that’s not stopping the …
By David Berglund, JLL The Minneapolis-St. Paul industrial real estate market continues to show strength as tenant demand and leasing activity keep vacancies low and absorption steady. In the second quarter of 2023, there were more than 4 million square feet of leasing and 523,641 square feet of net absorption, which pushed vacancy rates down slightly to 3.6 percent. In addition, roughly 800,000 square feet of speculative development was removed from the market. Currently, there is just 2.7 square foot of available space for every square foot of tenant demand. Year-to-date absorption was nearly 2 million square feet, led by the Northwest submarket with nearly 1.3 million square feet of that total since January. The Northwest submarket has been leading in absorption in four of the past six quarters. Asking rents increased to $6.21 per square foot and first-year rents continued to climb to $9.13 per square foot, reflecting an 11.5 percent growth over 2022. With very low vacancy and limited supply coming, we are continuing to see favorable conditions for landlords in the Twin Cites industrial market. New high-water marks for rents will likely continue into 2024. Investment sales, however, tapered off significantly as the impact of several incremental …
By Jeff Budish, Northmarq Three years in, and the COVID-19 pandemic has immensely altered how multifamily and commercial properties are utilized, located and valued. Now with interest rate changes, all product types have seen a hit from the change in the cost of capital. While challenges are on the horizon, Midwest markets, including Minneapolis-St. Paul, should see less shake up than elsewhere. Despite rising interest rates, recession worries and nagging inflation, the Twin Cities multifamily sector is resilient. Vacancies remain low, demand is outpacing supply and rents are solid. Year over year, apartment rents in the Twin Cities area are up 5 percent. While COVID changed the dynamics of all product types, it explicitly impacted multifamily. The increase in remote work meant employees were not tethered to a physical office. Many people moved away from their workplaces in densely populated areas to the suburbs. However, Minneapolis and St. Paul proper generally saw net outbound demographic shifts. Valuations over the past two years therefore didn’t include additional inflated pricing based on speculation of continual inbound movement. There is also soaring demand for apartments due to an increase in the number of Americans living on their own, roommate-free. In an AvalonBay public …
By Jill Rasmussen, Davis The Minneapolis – St. Paul medical office building (MOB) market remains strong with calculated strategic growth from both hospital systems and independent clinics. The MOB sector has been resilient during the pandemic, economic challenges and local civil unrest. Providers have been focused on expanding into new market areas to locate close to their patient base, providing full-service medical hubs offering outpatient surgery and specialty services to communities while offering lower-cost care away from a hospital campus. The overall market remains very stable with a current vacancy rate of 8.6 percent on-campus and 10.6 percent off-campus. There remains high interest in off-campus locations for most non-acute care for location access and cost savings. Base rents continue to increase both on- and off-campus due to demand and higher new construction pricing. Base rates have reached nearly $22 per rentable square foot (rsf) on average on-campus and $21/rsf for off-campus existing product. New MOB construction rates have increased from $24.50/rsf to $28+/rsf due to interest rate hikes and supply chain/labor issues, but new construction projects continue to move ahead based on provider’s strategic initiatives. Annual base rent increases are trending up due to current inflation levels from a historical …
By Jesseka Doherty and Johnny Reimann, Mid-America Real Estate The fundamental strength of the metro Minneapolis economy is on full display in the suburban retail real estate market this summer, where space is tight, new supply is limited, rents are on the rise and construction costs continue to challenge tenants and landlords alike. The macroeconomic picture in the first half of the year was stunning, actually. For the second quarter that ended June 30, the unemployment rate was a remarkable sub-2 percent, which was even lower than the national level of about 4 percent, and consumer spending was robust. Urban submarkets have been more challenged, but even in the Minneapolis central business district, retail rents are holding up as the office market shows stability. Driving demand With work-from-home still a factor, remote employees who live in the suburbs often are more inclined to shop, dine and play close to home, which bodes well for retail in proximity. Across key trade areas, retailers and other tenants in regional and community centers are more in demand than ever. Submarkets faring well include Apple Valley, Burnsville, Coon Rapids, Eagan, Maple Grove, Roseville and Woodbury. The densification of the suburbs also is driving demand …
2021 has been an absolute whirlwind for the Minneapolis-St. Paul (MSP) industrial market. Plunging cap rates, liquidity growing faster than ever and a sharply felt shortage of new supply have defined the last year and will continue to define 2022. New faces on the development side are entering the market right and left to capture the huge profits to be had from the supply/demand imbalance. New construction has been stabilizing in six to eight months and institutions have ear-marked MSP as a forward-sale market. The following are a few of the salient trends that should be considered when contemplating the MSP industrial market. Liquidity growth Since the last trough in 2016, the MSP industrial market has experienced an average 30 percent year-over-year growth in sales volume. 2021 experienced nearly half a billion dollars more in industrial investment sales than 2020, according to Real Capital Analytics. Cap rate compression Over the last year, the MSP industrial market has experienced change unlike in any other year. Entering 2021, the low-water stabilized cap rate was 5.15 percent, but by year-end, that had sunk 82 basis points to 4.33 percent. Warehouse rates in the $8 to $9 NNN range, once rare, are now commonplace; …
The metro Minneapolis retail real estate market is healthy overall coming out of 2021, with suburban submarkets on fire in many cases and urban submarkets generally subdued. A major overhang of supply was absorbed across the region last year as construction slowed dramatically, pushing retail vacancies down, rents up and sales prices of single and multi-tenant assets higher overall. It’s a testament to the market’s overall stability and resilience given the multiple waves of COVID, and events surrounding the George Floyd case that was prosecuted last year in the city. Work-from-home effect With many white-collar professionals still working from home and the center-cities tougher on mask mandates and vaccine requirements, the suburbs have shone the brightest. Vacancies were as low as 6 percent in some areas, with the overall market at 8.2 percent at year-end, according to the Minnesota Commercial Association of Real Estate/Realtors (MNCAR). Among the strongest performing submarkets have been Apple Valley, Maple Grove, Coon Rapids and Woodbury. The metro’s eight regional malls are generally faring well, unlike in some other markets across the U.S. that are more over-supplied. That said, there’s some adaptive reuse going on, including in the northwest suburb of Maple Grove where a freestanding …
By Peter Loehrer, Colliers MSP Minneapolis has secured its position as the darling market of the Midwest industrial investment community. Minneapolis was the quintessential Midwest city: cautious real estate development, durable rents with stately growth and moderate but unwavering absorption growth year to year. This, however, is no longer the case. A combination of repeated institutional capital injections, a highly constrained land market and exponential growth in tenants looking for new space has transformed Minneapolis into an institutional and foreign capital target market. Institutional capital By far the most transformational event in recent history for the Minneapolis industrial market was Link Industrial’s entrance into the market. Beginning in 2018 with the Gramercy acquisition, and continuing in 2019 with the Space Center acquisition — both of which have bits and pieces of the national portfolio located throughout Minneapolis — Link made its first real foray into Minneapolis in May of 2019 with the acquisition of the 2.2 million-square-foot Industrial Equities portfolio. Link quickly followed this up with pieces of the GLP and Colony Capital acquisitions, as well as the largest real estate purchase in Minneapolis history, the 7.2 million-square-foot CSM Corp. industrial portfolio, and most recently the 2.5 million-square-foot Prologis portfolio. …
By Ted Bickel and Jeff Budish, Colliers MSP At the start of the pandemic last spring, conversations with developers, investors and operators varied from discouraging to catastrophic. Everyone expected the worst. Luckily for the industry, that is not what happened. Amid a year of great uncertainty across the economic spectrum, the Twin Cities multifamily market showed a great deal of resilience, overcoming many challenges in 2020. 2020 recap Considering that the marketplace was nearly frozen for the second quarter of 2020, overall transaction volume for 2020 was surprisingly strong. Minnesota saw a considerable uptick in activity toward the end of the year, driving annual totals up to just short of $1.3 billion. A strong bounce-back in the second half of the year speaks to strong demand drivers and generally solid operating performance — even during the economic shutdown. However, while vacancies did not run up, as many had feared, collections and bad debt suffered. Understandably, many tenants struggled to pay rent as stimulus waned later in the year. This had a notable effect on net operating income. Overall, pricing did not change, while cap rates lowered to some extent. Inexpensive debt, particularly from the agencies, was a large factor in …
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