Midway Shopping Center, Minnesota

Grocers, Redevelopment Projects Highlight Twin Cities Retail

by Jeff Shaw

It’s hard to argue with the fact that the Minneapolis and St. Paul metropolitan areas are among the most economically dynamic and socially vibrant cities in the United States.

With a thriving business environment, strong growth and impressive demographics, Minnesota consistently ranks in the top five of the most educated states in America, according to the United States Census Bureau. The Twin Cities also boast an expanding workforce, outstanding public transportation network and a booming economy. With 17 Minnesota-based Fortune 500 companies, it’s not surprising that the Twin Cities are competitive on a national and even global scale.

Sara Martin Senior Associate, Welsh Cos.

Sara Martin, Welsh Cos.

The competitive energy and high-level activity in the city’s retail marketplace is being fueled in part by a surge of new retailers. The aggressive entry of new tenants to the market, along with the challenge of a 4 percent vacancy rate, is prompting quality spaces to be absorbed almost immediately.

As stated in the Welsh Q2 2015 market report, over 1.1 million square feet of retail space were absorbed during 2015, the highest number in the market in over a decade. The vacancy rate for regional mall trade areas is actually closer to 2.6 percent, with numbers for the Minnetonka/Ridgedale Mall trade area at a staggering 0.1 percent leading the market.

Grocers still dominate

One of the most active and competitive segments is the grocery sector. Despite the fact that Minneapolis is home to the corporate offices of Target and SuperValu, as well as local high-end grocer Lund’s & Byerlys, the Minneapolis grocery market was somewhat underserved until recently.

Hy-Vee is the biggest new entrant by far, with three stores open, three under construction and many more in the pipeline. The Iowa-based grocer, with stores typically boasting a 90,000-square-foot footprint, is sure to shake up a market that has long been dominated by the hometown players.

There are some big new names outside of the grocery segment, as well. Sierra Trading Post, an outdoor concept purchased by TJX Cos. in 2012, has chosen Minneapolis-St. Paul as one of the first markets to launch what it believes will be the next home run concept to add to its already highly successful lineup of stores.

New retailers spring up

5 Below is also entering the market, with three leases signed and more on the way. At Home, the Texas-based home décor superstore, has purchased a former Kmart and a vacant Walmart to facilitate its entry into the market. The first store opened in June.

Competition in coffee is another storyline that has emerged in 2016, as Tim Hortons and Dunkin’ Donuts are new market entrants at the same time. Minneapolis standby Caribou Coffee has an established a presence with a store count exceeding or equal to Starbucks. Expect to see the coffee wars continue to heat up.

When it comes to restaurant activity, fast casual/quick-serve brands remain the most active. Naf Naf Grill, Piada Italian Street Food and Cafe Zupas are headlining a list of new concepts in this category. The quick service restaurant segment in Minneapolis-St. Paul has always been strongly led by Chipotle and Noodles & Co., which have excellent market coverage.

Total Wine is relatively new to the market with three locations open and another opening this year. By all accounts, Total Wine is doing tremendous volume. T.J. Maxx, Marshalls, HomeGoods and Nordstrom Rack continue their growth and have all flourished.

With space at a premium, competition for standalone pad sites has picked up dramatically. Chick-fil-A, Bank of America and Raising Cane’s Chicken Fingers are among the most active in seeking the high-profile, Class A real estate.

Lease rates for outlot buildings have gone from $40 per square foot to $50 per square foot in a relatively short period of time. With rates and land costs spiking, we are seeing more carveouts on existing sites as owners and developers scramble to fill the demand for Class A locations.

Redevelopment ramps up

With nearly 1 million square feet of new retail space under construction in the suburbs of Eagan and Woodbury, one would think that the need for new space would be satisfied, but they would be wrong.

The planned redevelopment of the Midway Shopping Center, which sits on 24.5 acres, and the adjacent 10 acres owned by the Metropolitan Council could add as much as 400,000 square feet of new retail space, not to mention the office and residential components. New York developer RD Management owns the shopping center and is partnering with Minnesota United FC owner Bill McGuire to include a 21,500-seat Major League Soccer stadium.

The stadium, which will cost an estimated $150 million to build, will be funded completely by McGuire. The city will be required to provide infrastructure upgrades that are anticipated to cost $18.4 million. The construction on the stadium is scheduled to start this fall.

The city of St. Paul is also in the late planning stages on a 135-acre, mixed-use redevelopment of the old Ford Motor Co. plant in the Highland Park Neighborhood, which shares a river border with Minneapolis.

The Ford plant redevelopment may ultimately become one of the largest and most vibrant urban redevelopment projects the Midwest has seen in decades. Ford still owns the property, and recently began the site remediation necessary to start the process of redevelopment. Ford plans to have a buyer for the property locked down when remediation efforts finish in 2019.

All segments of the real estate community are waiting for the starting gun to sound on this exciting project, and there is sure to be unprecedented interest from developers and retailers alike.

No retail snapshot of Minneapolis would be complete without mentioning the Mall of America’s makeover and ongoing redevelopment. The first phase of the renovation and expansion includes $350 million in upgrades and features a new 5,000-square-foot skylight atrium space, a 342-room JW Marriot hotel, and a new 10-story office building.

The iconic mall is also poised to move forward on a 1 million-square-foot luxury expansion to be completed in 2017. The expansion will include a 580,000-square-foot high-end retail addition, a 180-room luxury hotel, office space and 120 new residential units. This expansion is sure to refresh the nation’s largest mall to keep the 40 million annual visitors coming back year after year.

With many new and exciting retailers entering Minneapolis and St. Paul and space filling quickly, the metro market is sure to remain highly competitive as we move into 2017.

— By Sara Martin, senior associate, Welsh Cos. This article first appeared in the September 2016 issue of Heartland Real Estate Business magazine.

You may also like