Strong occupancy throughout the Minneapolis metro area is driving construction activity, and developers are hurrying to get projects off the ground ahead of competitors. Leasing activity is underway for a number of luxury high-rise projects coming on line in the city, heightening competition for renters who desire and can afford top-end amenities. Projects in vibrant locations, such as the Mill & Main Apartments across the river from downtown Minneapolis, have been well received. The Mill & Main building, which is nearly 70 percent leased, has views of the Mississippi River and downtown. New luxury apartments are attracting many nontraditional first-time renters, such as empty nesters. This trend is likely to expand the renter pool across the area as recovering housing prices give the large baby boom cohort more options when selling and downsizing. The higher rents that luxury properties command have reset the bar for Class A rents. Existing Class A properties near top-tier apartments will likely benefit because they can raise rents and remain more affordable than the newer units. Development Pipeline Nearly 3,000 apartments have been delivered in the metro area during the past 12 months, including 2,100 market-rate units. So far in 2013, approximately 1,000 rentals have …
Minnesota
The Twin Cities retail market is still on the road to recovery, with 231,913 square feet of absorption since the beginning of the year. With steady positive absorption, the former tenant-favorable market is beginning to even out, especially with regard to the urban core or first-ring suburbs. Lease negotiations have started to tip in favor of landlords. Developers, tenants, landlords and brokers are all expressing increased confidence in the strength of the market. Among the tenants contributing to the healthy absorption of space have been Whole Foods, Walmart, and LA Fitness, all of which are opening stores throughout the suburbs. The overall vacancy rate in the third quarter stood at 5.7 percent, down from 6.2 percent the prior quarter, according to data compiled by the Welsh Cos. Vacancy at regional malls is 2.1 percent. The retail vacancy in the trade areas surrounding these regional centers follows suit with premier areas of demand among growing retailers. Chick-fil-A has also entered the Twin Cities market, opening stores in Apple Valley, Bloomington, Coon Rapids and Maple Grove. This continues the trend of new food tenants seeking more space in the Twin Cities, including Smashburger, Which Wich Superior Sandwiches and Freddy’s Frozen Custard & …
The recession negatively affected local, regional and national banks in Minneapolis/St. Paul and all commercial real estate product types. A wide range of real estate owned (REO) assets have sold in recent years, including single- and multi-tenant office buildings, industrial buildings, convenience stores, office condos, residential condos in bulk blocks, raw land, a campground, a historic warehouse, hotels — just about everything. The biggest sector of bank REO property has been land, particularly residential development land. Nevertheless, the start of the housing recovery has seen a reduction in the inventory of individual residential lots coupled with increased interest in some of our larger residential development sites from national homebuilders. While most of the insurance companies exited the Minneapolis commercial real estate market years ago, one of the national insurance companies did repossess a large Class A office property last year and sold it to a local investment group for a dollar more than the loan, which was $110 million. Zeller Realty Corp. of Chicago and Atlanta-based Invesco acquired the Fifth Street Towers from MetLife in April 2012. The buildings (two towers) were built in 1987 and 1988, and consist of roughly 1 million square feet. The group that lost the …
Although apartment construction has heated up in Minneapolis, renter demand remains healthy as many renters are wary of homeownership. As a result, vacancy is still below market equilibrium. Many renters in the market are young professionals who, before the housing market collapse, would have been looking to purchase a condominium. To appeal to renters, new apartment developments are adding higher-end finishes and features such as a concierge service, pub or cafe, outdoor gathering space, rooftop decks, dog runs and pet-care areas. In the process, builders have established a new rent ceiling and redefined the Class A segment. Supply-Demand Balance As a wave of new high-end projects are injected into the market, owners with existing top-tier properties could be at a disadvantage and will need to increase concessions to maintain occupancy levels. Approximately 131 apartment units came on line in the second quarter, for a total of 405 units finalized in the first half of 2012, expanding overall inventory by 0.3 percent. In the first six months of last year, 175 units were added. Development activity is expected to continue at a heightened pace. Some 2,450 units are under construction with completions scheduled through 2013. Also, there are more than 9,300 …
Has the pendulum swung to favor property owners in the Twin Cities industrial market? Not quite, but strong net absorption for bulk buildings and a recovering economy are creating positive momentum, bringing the market closer to equilibrium. Challenges remain for manufacturing and low-clear-height properties, but we expect that area of the Twin Cities industrial market to strengthen, too, as overall conditions continue to improve. In the third quarter, industrial net absorption totaled 669,179 square feet, driving down the vacancy rate to 11.2 percent compared with 11.8 percent in the previous quarter for the 113 million-square-foot market. The Northwest and Southwest submarkets led the way, with 329,774 square feet and 226,230 square feet of net absorption, respectively. While positive net absorption is a great sign for the Twin Cities industrial market, the statistics really get interesting when broken down for big-box bulk properties, especially modern space built since 1995 with at least 28-foot clear-height ceilings. Modern bulk industrial properties account for approximately 25 percent of the overall 25 million-square-foot bulk market, but gained more than half of the subsector’s net absorption with 131,175 square feet. That led to a 2.1 percent drop in third-quarter vacancy from the previous quarter, to 5.7 …
Cash is flowing in the greater Twin Cities real estate market in spite of slow, but positive, year-over-year absorption rates. Investment action was significant in the third quarter of this year. New multifamily housing projects are booming, private student housing developments serving the University of Minnesota continue to grow, and corporate build-to-suit projects add to the inventory in a down economy. The Twin Cities office market has remained stable with modest absorption through the past three years based upon existing inventory. And although there is significant construction in other product types, there is little significant multi-tenant office construction at present. ECONOMIC BACKDROP The 5.7 percent unemployment rate in the Twin Cities stood well below the national jobless rate of 7.8 percent in September. In fact, the unemployment rate for the state of Minnesota was 5.8 percent, again much better than the national average. The Twin Cities does not depend on any single industry and is home to a variety of Fortune 500 headquarters such as Ameriprise Financial, Best Buy, Ecolab, General Mills, Target, 3M, St. Jude Medical, Medtronic and UnitedHealth Group. The variety of services and industries helped buffer the local economy during the Great Recession, although the downturn adversely …
The Twin Cities retail market continues to steadily improve from the economic depths of 2008 and 2009. There has been 549,194 square feet of positive absorption since the first quarter of 2011. Another encouraging sign is the increased activity among landlords, tenants and developers. One example of the positive outlook is the investment that landlords are making at regional malls to upgrade and reposition them. The Mall of America in Bloomington seeks to add 550,000 square feet of retail, medical office and hotel space. Southdale Mall, Ridgedale Mall, and Maplewood Mall are also investing in their centers to better compete in this rising market. Another sign of increased activity can be seen among food tenants. Quick service restaurants are betting that Minneapolis-St. Paul residents have a large appetite for yogurt, sandwiches, and burgers and are actively seeking space. Burger and sandwich concepts include Smashburger, Which Wich, Firehouse Subs, and Freddy’s, which are growing in popularity along with Freeziac, Tutti Frutti, Menchies, and CherryBerry yogurt shops. Also active are Noodles, Chipotle, and Starbucks. These types of tenants have gobbled up smaller spaces and end-cap spaces vacated by tenants such as defunct Hollywood Video and Blockbuster. They are pursuing the same spaces …
The Minneapolis-Saint Paul MSA was on the road to recovery long before many others. And while that might come as a surprise to outsiders, this market actually packs quite a punch. With more than a dozen Fortune 500 employers — including Target, Wells Fargo, U.S. Bank, Ecolab and 3M, to name a few—the MSA’s 5.1 percent unemployment rate is a full three points lower than the national average and is consistently ranked as one of the friendliest job markets in the country. Little wonder national retailers have been so keen on taking space in prime Twin Cities markets such as Roseville, Edina (Southdale) and Minnetonka (Ridgedale). Whole Foods, for instance, opened a Minnetonka store in a former Circuit City box late last year and also razed a vacant Storables to make way for a Southdale store. More recently, the Texas-based chain announced plans to open a downtown Minneapolis store on the site of a former Jaguar dealership. Slowly but surely, remaining Ultimate Electronics, Circuit City and Linens ’n Things boxes are being refilled by expanding chains. Some are leasing vacant boxes in their entirety; others are taking portions of subdivided boxes. Case in point: Last year T-Mobile, Godfather’s Pizza and …
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 …
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 …