Dotted with construction cranes, Minneapolis’ skyline tells the story of economic growth the likes of which hasn’t been seen in almost a decade. Record-shattering investments in office space and in employee satisfaction speak to the confidence companies have in the accelerating Twin Cities market. This renewed corporate confidence is buoyed by the lowest unemployment rate of any U.S. metro area with a population greater than 700,000, and is evident by the increasing number of long-term lease commitments (seven-plus years) to the Twin Cities market. The office sector began picking up — first with local investors and now with national investors — soon after the opening of a new baseball stadium for the Minnesota Twins in 2010, which kick-started a rash of high-end, urban multifamily developments. The current multifamily boom in the Twin Cities is expected to bring nearly 10,000 units to the residential market in the coming years. Increasingly, people want to live, work and play downtown. Multifamily, retail and office developers are ramping up the quantity and quality of supply. An additional sign of growth is the $1 billion currently being invested in a new football stadium for the Minnesota Vikings. Renovation Ramps Up Class C office buildings accounted …
Minnesota
The Twin Cities retail market continued to improve in the second half of 2013 due to robust leasing activity at neighborhood centers. The vacancy rate registered 7.2 percent at the end of 2013, down from 8.6 percent a year earlier, according to Cushman & Wakefield/NorthMarq. That is the lowest vacancy rate since the fourth quarter of 2008. The market saw healthy absorption of 439,000 square feet during the second half of 2013. With retail spaces filling, rental rates declined modestly, dropping from an average of $27.73 per square foot during the second quarter of 2013 to $27.60 per square foot in the fourth quarter. The rental rate decrease was primarily due to the decline in rates at community centers, as discount retailers negotiated lower rents. Many of these discount retailers filled big-box and junior-box spaces that had been vacant for a long time. (To view larger version of chart, click here.) The Franchise Factor The majority of retailers that entered the Twin Cities in 2013, or expanded their operations locally, were focused on food and services such as hair care, massage, cellular and fitness. Five Guys Burgers & Fries and Yogurt Lab, relative newcomers to the market, now operate multiple …
Optimism abounds in the Twin Cities apartment market, and for good reason. It’s a top performer in the Midwest, and ranks high in the nation overall. The key indicators are compelling: low vacancies with rental rates rising; steady apartment sales; robust new development, especially in core urban and first-tier markets; and flowing pipelines. Among 52 metropolitan areas showing the most economic momentum heading into 2014, Minneapolis/St. Paul ranked No. 14, according to the Praxis Strategy Group. Criteria included GDP growth, job growth, real median household income growth and current unemployment. Property owners, buyers, developers and funding sources are all benefiting from a strengthening apartment market, a trend that began in 2009. Although statistics vary by source, there is consensus on future apartment trends in the seven-county metro area. For apartment owners, a tight rental market means growing revenues, a far cry from the glut of vacant units that existed a few years ago. Last year, vacancy rates averaged 2.8 percent, compared to 7.9 percent in 2009, according to real estate research firm Reis. A boon for landlords, rising rents are forcing many lower-income renters out of the cities into the suburbs. Statistics show the average rent in the Twin Cities …
Optimism abounds in the Twin Cities apartment market, and for good reason. It’s a top performer in the Midwest, and ranks high in the nation overall. The key indicators are compelling: low vacancies with rental rates rising; steady apartment sales; robust new development, especially in core urban and first-tier markets; and flowing pipelines. Among 52 metropolitan areas showing the most economic momentum heading into 2014, Minneapolis/St. Paul ranked No. 14, according to the Praxis Strategy Group. Criteria included GDP growth, job growth, real median household income growth and current unemployment. Property owners, buyers, developers and funding sources are all benefiting from a strengthening apartment market, a trend that began in 2009. Although statistics vary by source, there is consensus on future apartment trends in the seven-county metro area. For apartment owners, a tight rental market means growing revenues, a far cry from the glut of vacant units that existed a few years ago. Last year, vacancy rates averaged 2.8 percent, compared to 7.9 percent in 2009, according to real estate research firm Reis. A boon for landlords, rising rents are forcing many lower-income renters out of the cities into the suburbs. Statistics show the average rent in the Twin Cities …
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 …
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 …