The Twin Cities area, a region of more than 3 million people, is still trying to extricate itself from the base of this pesky commercial real estate cycle. While the retail real estate deal volume is starting to pick up here, it remains more of a trickle than a flow, with value-priced merchants spurring much of the activity. In the first half of 2010, the Twin Cities retail vacancy rate stood at 10.4 percent, meaning nearly 7 million square feet of retail space remains vacant, according to Minneapolis-based NorthMarq, a commercial real estate services firm. On the national tenant side, several retailers are repositioning themselves, either by upgrading existing stores or relocating to more advantageous spaces as leases expire. There are also rumblings of several national tenants eyeing vacancies in the 10,000- to 25,000-square-foot range. Not surprisingly, value merchandisers such as Dollar General, Big Lots and Dollar Tree have increased their footprints in this environment as well. We are also seeing a slight resurgence in demand from mom-and-pop tenants. As in past downturns, there’s a growing roster of talented people who were displaced by corporate America that are opening their own retail businesses. At the commodities level, the grocery trade …
Market Reports
Office development in the Minneapolis market is virtually at a standstill. Since the economy’s downturn, many projects have been shelved, and developers today are striving to locate aggressively priced, dispossessed buildings that can be repositioned and brought back to life for the next real estate cycle. The exceptions are highly visible build-to-suit projects. In September, Acosta, a sales and marketing company, plans to move into a new 65,000-square-foot building in the southwest suburb of Eden Prairie. Additionally, the law firm Hellmuth & Johnson is building 44,000 square feet of office space, topping three levels of covered parking at the intersection of Interstate 494 and Highway 169, also in Eden Prairie. Shadow space is an underlying issue affecting development in the Twin Cities. Until companies can absorb space they already lease but currently maintain as vacant, the development cycle will remain flat. Leasing activity is also quiet. Those businesses that are relocating are typically consolidating or otherwise downsizing. However, the U.S. General Services Administration is in the market for nearly 500,000 square feet of office space. Half of that is being spurred by a short-term need to relocate workers displaced by a $115 million federal stimulus funded renovation of the Bishop …
Caution is the course that many industrial tenants are pursuing in the Twin Cities of Minneapolis and St. Paul, especially when it comes to leasing or acquiring new space. This is partly to do with being prudent and partly to do with firms' continued inability to dislodge money from the frozen capital markets. “More so than I have ever seen in the market, companies are very reluctant to consider relocating,” says Bill Ritter, senior vice president of Welsh Companies. “Any company that has the ability to consolidate or renew is looking at that versus the cost associated with physical relocation.” For those that are in the market for space, Ritter has optimistic news. “I have never seen a better time to be a tenant in over 25 years of experience leasing and selling industrial real estate,” he says. Ritter goes on to say that a unique trend is developing in which landlords are trying to get their tenants to renew 12 to 18 months before the end of their lease terms, and they are willing to rewrite the current rental agreement — with discounted rates — if the tenant agrees. “Sure, the landlord is giving something up, but if that …
“Ride out the storm,” may be the refrain of industrial developers, landlords and tenants, as the recession and the resulting uncertainties have all players in the Twin Cities commercial real estate industry watching carefully and exploring their options. For starters, development has ground to a halt. This may be the silver lining, however, since it will enable the market to more easily absorb existing product and sublease space, thus allowing the market to recover more quickly when the economy begins to turn the corner. There is a small amount of spec product on the market, but this represents such a small amount that it has little to no impact. Fortunately, the restrained development has allowed the industrial market to catch its breath. During the first quarter, absorption fell in positive territory, with nearly 197,000 square feet absorbed, leading to a slight decline in vacancy from 10.1 percent to start the year to 9.9 percent by the first quarter’s end. The modest absorption has largely been driven by smaller deals. Another side effect has been the collapse of the land market. Land prices have come down as much as 50 percent from their highs during a flurry of activity some 12 …
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