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 …
Minnesota
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 …
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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