Q3 2020: OFFICE MARKET UPDATE
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) increased 500 basis points. To 7.9% for August 2020 from 2.9% for August 2019. The unemployment rate for the US was 8.4% in August 2020 up from 3.7% last year. State of Minnesota unemployment rate was 7.4%. The Mpls-St Paul MSA saw a decrease in job growth. As well as a decrease in office job growth in professional, financial and information dropping 21,300 during the same period.
The Mpls-St Paul office market, consisting of over 128 msf of space in seven counties across the metro topping 95,000 sf negative absorption for Q3 2020. The vacancy rate for the market stands at 12.5% for all properties. Multi-tenant properties posted 16.4% vacancy with over 64,000 sf negative absorption. The average asking lease rate for Mpls-St Paul came in at $25.02 psf FSG. During Q3 2020 there were 9 construction projects throughout the market totaling just over 1.3 msf.
During the Q3 2020 the market experienced over 1.1 msf of leasing activity in 251 transactions. Class A properties vacancy rate dropped for all properties this quarter to 10.3% compared to 8.8%. It also dropped to 15% for multi-tenant properties compared to 12.7% Q2 2020. For multi-tenant properties the Northwest market posted the lowest vacancy rate at 10.6%, Mpls CBD vacancy was 18.7%, St Paul CBD was 18.4% and suburban markets was 14.6%. Southwest market posted the most positive absorption of 137,000 sf with The Nerdery leasing 60,000 sf and new delivery of Bridgewater Corp. The West market posted the largest negative absorption of 125,000 sf for all property types led by Dominium space available for lease with 53,000 sf.
The Mpls-St Paul market consists of single and multi-tenant office buildings 20,000 sf or larger or part of a complex larger than 20,000 sf. The geographic area includes Anoka, Carver, Dakota, Hennepin, Ramsey, Scott and Washington counties. The tracked set does not include medical or government properties. All tracked properties are existing. Statistically, net absorption will be calculated based on occupancy change during the current quarter. Asking lease rates are based on an average asking rate and noted on a FSG terms with Net type leases grossed up.
View Full Report: Q3 2020 MNCAR Office Market Report
Source: Minnesota Association of Realtors (MNCAR)
Q3 2020: OFFICE MARKET UPDATE
INVENTORY STORAGE? Proceed with caution.
Since 2017, days of inventory have increased for manufacturing firms nationwide, which means inventory storage has also increased. Days of Inventory in 2019 hit 59, up from 53 in 2018, and 51 in 2017. Mathematically, a decrease in the cost of sales could be causing this. COGS have actually increased slightly from 75.80% of revenue in 2017 to 75.98% in 2019. This indicates that firms have an increasing amount of inventory. Assuming this is not an over-production issue, firms are not selling as much as years prior.
This could be interpreted as a sign of economic slowdown, even before the Covid-19 storm made landfall. The increase in inventory may lead some businesses to think that they need additional space, which they may have a legitimate need for, but if the underlying reason is because of a weaker economic environment, the right course of action for the business to take might not be committing to a new long-term lease. Companies that absolutely need to move product offsite may want to explore third-party warehousing as an option. It is not as cost-effective as leasing traditional warehouse space on a per square foot basis, but allows the end-user the flexibility to change on a month-to-month time horizon.
The global health crisis has further complicated the situation. Some manufacturers now cannot keep enough stock to satisfy their customer’s needs. This may temporarily reduce the need for additional storage, even though it would be financially feasible. As with most circumstances, each should be evaluated on a case-by-case basis.
Written by: Joseph Schultz, East Team Associate
MID-YEAR 2020 INDUSTRIAL MARKET UPDATE
Net Absorption & Vacancy Rates
Statistically, Q2 2020 is showing the effects of COVID-19 on industrial leasing activity and the industrial market. Net absorption of vacant space during Q2 2020 was only 107,345 SF compared to 829,298 SF for Q2 2019. YTD net absorption for 2020 totals 330,369 SF compared to 1,587,669 SF in 2019.
The difference in the net absorption numbers (SF) between 2019 and 2020 is significant. However, the industrial market remains healthy as demonstrated by the overall industrial vacancy rate of 5.0% through the Q2 2019 and 4.8% through Q2 2020. More specifically, YTD industrial vacancy rates reflect the continued sound condition of the market by product type:
What is Influencing this Market Condition?
Two characteristics of the current market have significantly influenced the ongoing strong conditions of the industrial market: 1) Vacancy rates were at historical lows prior to the introduction of COVID-19 and, 2) Delivery of new industrial product to the market year-over-year has moderated. YTD Q2 2019 deliveries of new industrial product totaled 1,853,203 SF. While Q2 2020 new deliveries of industrial product totaled only 906,571 SF. The combination of less new development coming on line and limited negative absorption has enabled vacancy rates to remain low. Therefore, the overall market is in a state of good health.
Current expectations between landlords and tenants do seem to significantly differ. Tenants believe the industrial market has weakened and landlords are still very bullish on the market. A major reason for this difference in perception of the market has been the media’s reporting on the commercial real estate market. Retail and office space have been significantly impacted by COVID-19, so far in 2020. COVID-19 has had a very limited impact on new industrial lease terms and conditions, at least through Q2 2020. Limited net free rent, and tenant improvement packages, combined with strong net rates seems to be the story of the day for most industrial properties. The one exception to these healthy characteristics is office/flex/showroom product. Office/flex/showroom product still requires net free rent and significant improvement dollars generally to consume a new lease.
Hottest Industrial Market Segment
One of the brightest spots in the industrial market is User/Owner building sales. The limited supply of functional industrial properties currently available For Sale, combined with the low interest rate environment for debt, has pushed User/Owner building values to all time highs. Specifically, well-located properties receive multiple offers in many instances.
What is to Come
Finally, finding a vaccine that will make the current pandemic a thing of the past will remove much of the uncertainty existing today in the economy and the commercial/industrial real estate market. If the pandemic continues on into next year, the statistics and resulting story being told may be much different than it is today.
Written by: Phil Simonet, Principal
The Twin Cities industrial real estate market is HOT!
Is it the “Amazon Effect”?
Amazon’s 24-hour delivery promise requires them to lease multiple, dispersed, and well-located distribution centers. This, in turn, is driving up building values and rents all over the country. Case in point, two recent owner/user building sales. First, a 31,000 square foot building in Mendota Heights sold for $86.69 per square foot, and second, a 63,000 square foot building sold for $88.91 per square foot. Just a few short years ago, these would have been sold for $70.00-$75.00 per square foot. Winning the lottery would be great, but it seems like owning a 10,000 to 60,000 square foot industrial building anywhere in the Twin Cities (especially in the 494/694 loop) is the next best thing.
Funny thing happens when building values go up…rents go up, too. Multi-tenant landlords throughout the City are pushing up rates by $0.25-$0.45 per square foot and, for renewals, they are not accepting rents below the last lease rate in effect for the lease.
All of these factors are now fueling a resurgence of sale/lease backs. Recently, two sale/lease back transactions had sale prices 20% over the normal market price with seller’s signing ten-year leases. This put cash in the seller’s pocket to fuel business growth and provided much needed investments to Opportunity Zone or 1031 exchange investors. “Amazon Effect” or not, building values are climbing with no end in sight…for now.
~Written by John Young, CCIM | Vice President
Contact Paramount for a Building Valuation,
Lease Review or Market Update
Written by: MNCAR/Redi Comps
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St. Paul metropolitan statistical area (MSA) increased 40 basis points from 2.7% for May 2019 from 2.3% for May 2018. The unemployment rate for the U.S. was at 3.6% in May 2019, down from 3.8% Y-o-Y for the US. The Mpls-St. Paul MSA saw an increase in industrial job growth in manufacturing increasing 1,200 during the same period.
The Mpls-St.Paul industrial market consisting of 244M SF in eight counties across the metro posted over 829,000 SF of positive absorption for Q2 201\98. The overall vacancy rate for the market stands at 5.0% and multi-tenant vacancy was 8.0% for Q2 2019. The average asking lease low rate was $5.67 and high rate was $9.22 NNN for Mpls-St. Paul. To date, there are 12 construction projects throughout the market totaling over 2.4M SF and 1.8M SF was delivered year to date.
At the close of Q2 2019, the market experiences over 1.6M SF of leasing activity. The vacancy rate finished the year at 5.0% in total with the Southeast and West markets being the tightest at 4.0% for all properties. Illume held the top spot in absorption with 277,000 SF in the Northwest market. The Northwest market is showing the highest vacancy rate at 6.1% for all properties while Northeast is highest for multi-tenant properties at 9.4%.
READ ENTIRE REPORT: Q2-19_Mpls-St_Paul_Industrial_Market_Report
Written By: MNCAR/Redi Comps
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St. Paul metropolitan statistical area (MSA) increased 40 basis points from 2.7% in May 2019 to 2.3% in May 2018. The unemployment rate for the U.S. was at 3.6% in May 2019, down from 3.8% for the Y-o-Y for the US. The Mpls-St. Paul MSA saw a decrease in office job growth, professional, financial and information increased by 1,200 during the same period.
The Mpls-St.Paul office market, consisting of over 127M SF of space in seven counties across the metro posting 131,600 SF positive absorption for Q2 2019. The vacancy rate for the market stands at 11.3% for all properties for Q2 2019. Total year-to-date absorption is 256,750 SF. Multi-tenant properties posted 14.9% with 175,000 SF positive absorption . The average asking lease rate for Mpls-St. Paul came in at $24.30 PSF FSG. To date, there are 15 construction projects throughout the market totaling over 2.7M SF.
During the second quarter 2019 the market experienced over 1.1M SF of leasing activity and the vacancy rate finished the quarter at 11.3% in total. Class A properties ended the year at 8.6% for all properties and 12.7% for multi-tenant properties. The West market posted the lowest vacancy rate at 11.3% for multi-tenant properties. For the second quarter the West Market carried the market with the most positive absorption of 63,000 SF. St Paul CBD posted the largest negative absorption of 90,000 SF.
READ ENTIRE REPORT: Q2_19_Mpls-St_Paul_Office_Market_Report
by a Twin Cities Industry Professional
The CoWorking industry has taken the world by storm. In 2005, there were only 3 verified CoWorking spaces in the entire world. And as of 2017, that number had skyrocketed to a staggering 15,000 and that number is slated to double by the end of 2018. These figures are a testament to the rise in digital workplaces and remote working.
I just came back from our Global Workspace Association conference in Austin, Texas and came away with a few interesting facts:
In July and August 2018, 306 new CoWorking centers were opened worldwide. 169 being in the United States. The number of new CoWorking locations are estimated to grow to almost 1,000 in the U.S. by the end of 2018. At the end of 2017, 44% of coworkers were female. By the end of 2018 that number will grow to almost 50% of coworkers being female. By the end of 2019, there will be approximately 1 million people coworking.
But CoWorking is not just for small businesses anymore. Global companies are using flexible space solutions as alternatives to taking or building their own workspaces. They are turning to large CoWorking companies like WeWork to house entire divisions of a company for special projects or teams, and in some cases entire divisions of a company. Studies providing workspace is expensive and can tie up capital. CoWorking can reduce their liabilities and long-term commitments by using flex space providers to house their workforce. Instead of CoWorking communities growing by one or two people at a time, large companies will place 40 or 50 people in a workspace and as many as hundreds of people at one time or over a short period of time.
These facts tell us that the workspace has changed dramatically. Particularly since trends in entrepreneurship and the evolution of the home based business has changed not only how work is done but also where work is done. In addition, technology has played a large part in the ability for workers to use the Internet to work anywhere they choose. CoWorking supports businesses by offering flexible workspace solutions, short term space commitments and the economies of sharing facilities and staff. In short, flex space and CoWorking works! Not just for small businesses but for every business.
“Life is short. Work someplace awesome!”
My background as a CoWorking service business started in 1981. I have seen the workspace evolve and change dramatically. In our early days, we looked for usually “one guy” to take a permanent private office. The offices looked very similar in that they had a basic desk, credenza, chair and a couple of side chairs. That format worked for years. And then technology took the lead. Computers and the internet allowed people to communicate at a different level. Email changed correspondence norms and encouraged less paper and mail costs. The pace of workspace became lightning fast, no more worrying about the fax machine or document delivery. Our target clients are road warriors who carry their office wherever they go whether it is home, auto, hotel or designated workspace.
Technology changed the definition of work. Today almost 90% of businesses created are home based. And home can be an excellent place to work: the dress code rocks, the commute is non-existent, and the economics for a small business make sense. But many people found home is not ideal for those who find distractions a challenge. The number one complaint of businesses that work from home is isolation. There is just no interaction with like-minded professionals or coworkers hanging out at the coffee station or the water cooler. That is where CoWorking hits a home run.
At OffiCenters we have conquered the isolation of entrepreneurial workers. Our workspaces push beyond four walls and include over 1,200 members in our community. We offer not just the space to work but options on collaboration and business challenges. We have networking groups, educational seminars, community outreach and charitable events, and mostly opportunities to meet the five generations of members in our workspaces. In my over 30-year career in workspace as a service, it has never been so exciting.
A recent survey of OffiCenters’ members (August 2018) showed 100% found our spaces conquered their isolation problems. 81% of members have made critical professional bounds within our community. 83% feel that joining a CoWorking community makes them more productive. 78% say they have increased their bottom line since joining OffiCenter. These are powerful numbers and we are proud to influence our community to success. We really emphasize working within our own community and for members to buy from one another whenever possible.
Over the last 8 years we have completely remodeled our workspaces to include not just single private offices but more meeting and conference room choices, team spaces, collaborative workspaces and 60 seat open areas in all of our locations. Our CoWorking spaces have a coffee shop type of environment only with a more professional feel and a lot better Wi-Fi connections.
OffiCenters has 7 locations in the Twin Cities area, which include: Bloomington, Edina, Minnetonka, St. Louis Park, Woodbury and the Minneapolis North Loop.
If you or anyone you know would like to try CoWorking,
please call us at (612) 349-2700 for a free day pass.
Lori Spiess, Founder of OffiCenters
Lori Spiess is the Founder of OffiCenters and has provided workspace solutions to the Twin Cities since 1981. She is an innovator; leader and motivator who help businesses do their best work. She was the first woman President of the Global Workspace Association (GWA). Her company won Most Innovative Workspace 2014 and she made Minnesota Real Power 50 list in 2015. Spiess, a recent cancer survivor, has a new motto: Life is short. Work someplace awesome!
You can view her location at https://officenters.com/.
INDUSTRIAL MARKET TRENDS | Q4 2018 | Mpls-St. Paul
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St. Paul metropolitan statistical area (MSA) decreased 50 basis points from 2.5% in November 2018. The unemployment rate for the U.S. was at 3.8% in October 2018, up from 2.8% for the State of Minnesota. The Mpls-St. Paul MSA saw an increase in industrial growth in manufacturing growing by 6,900 during the same period.
The Mpls-St.Paul industrial market, consisting of 119 msf of space in either counties across the metro posted an availability rate of 11.4% for Q4 2018. The vacancy rate for the market stands at 8.2% to close out 2018. The average asking lease low rate was $5.82 and high rate was $9.00 NNN for Mpls-St. Paul. To date, there are 17 construction projects throughout the market, totaling just over 209 msf.
At the close of Q4 2018, the market experiences over 1.9 msf of leasing activity and the vacancy rate finished the year at 8.2% in total with the Southeast market posting the lowest rate at 7.0%. The top five lease transactions accounted for over 490,797 sf throughout Mpls-St. Paul with the largest leased space for Asmodee North America leasing 130,000 sf. Northeast warehouse distribution increased to 15.7% vacancy from 11.3% due to new deliveries totaling 468,188 sf.
READ ENTIRE REPORT: Q4 2018 – Industrial Market Trends
Written by: MNCAR/Redi Comps
Demand for Industrial Space Will Remain Robust
Based on over 40 economic and real estate factors such as employment, GDP, exports and imports, and air, rail and shipping data, the NAIOP Research Foundation forecast suggests that net absorption of industrial space could increase slightly through 2018. Overall, market consensus seems to be that the latter half of 2017 may benefit from a release of pent-up demand due to the election of Donald Trump.
While stories about the “death of retail” are assuredly overblown — with REIS reporting recent quarters of positive net absorption of retail space and the U.S. Census Bureau posting all-time record highs in retail sales — it is increasingly clear that more physical goods will pass through multiple distribution warehouses before reaching consumers’ hands.
New orders of goods are growing, manufacturing activity still appears to be increasing steadily in the U.S. as of the second quarter 2017 which require more industrial facilities, thus the demand for industrial real estate.
Read more: Qtr3 2017-Industrial Space Demand Forecast
In 2009, the NAIOP Research Foundation awarded a research grant to Anderson and Guirguis to develop a model for forecasting net absorption of industrial space in the United States. That model led to successful forecasting two quarters out. A white paper describing the research and testing behind the model for NAIOP’s Industrial Space Demand Forecast is available at naiop.org/research.
For more info about the NAIOP Research Foundation, contact Bennett Gray at 703-674-1436 or email@example.com.
TCN Worldwide Ranks in Top 10 Brokerage Firms in NREI’s 2016 Top Brokers Survey
Commercial real estate brokerage firms posted another strong year, growing both leasing and investment sales volumes, according to data provided to National Real Estate Investor as part of their annual ranking of top commercial real estate brokers.
We are pleased to announce TCN Worldwide was recognized as one of the industry’s top brokerages, ranking 8th (by Deal Volume at $58.6 Billion), in National Real Estate Investor’s 2016 Top Brokers Survey.
The top commercial real estate brokerage firms posted robust year-over-year gains in deal volumes in 2015. National Real Estate Investor reported that the firms that ranked in the top 20 in each of the past two years posted average transaction volume growth of 15.0 percent from 2014 to 2015.
The NREI ranking reaffirms TCN Worldwide’s position as an industry leader, and one of the top brokerages in the commercial real estate industry.
See TCN’s Top 10 Member Deals for 3rd Quarter 2016.
Read more: TCN Worldwide’s Commercial Focus Newsletter | 2016_Q3
—H. Ross Ford III
President & CEO, TCN Worldwide