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MID-YEAR 2020 INDUSTRIAL MARKET UPDATE

Industrial Market Update

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. 
Different Opinions
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

MID-YEAR 2020 OFFICE MARKET UPDATE

Office Market Update

MID-YEAR 2020 OFFICE MARKET UPDATE

UNDERUTILIZED OFFICE SPACES
The office market holds on while companies extend work from home options into 2021.  While the expectation stays the same that amenities will continue to drive demand, those amenities have gone nearly unused during Q2 2020.  It is anticipated that in upcoming months, those underutilized spaces will help alleviate some congestion as workers return and a relief valve is needed for the more heavily occupied tenant spaces.  For now, every other chair is literally turned on end.  Parking ramps and common area cafés remain empty and there isn’t a waiting line in the elevator lobby.  Certainly, leased office spaces are currently underutilized.  Because of this, a reduction in operating costs due to lower utility and cleaning costs could be forthcoming. 

POSITIVE ABSORPTION & LOW INVENTORY
The above narrative however, is not reflective in the Q2 data as businesses, bound by leases, utilize PPP programs to keep productivity up.  Unemployment surged in May 2020 to 10.4% from 2.6% in May 2019.  Even with that bad news, the overall office market experienced 664,000 square feet of positive absorption ending Q2 with a total market vacancy rate of 12%.  Focusing on multi-tenant properties only, the overall vacancy rate hovers at 15.7%, 0.3% up from year end 2019.  The clear winner continues to be the Northwest submarket with an overall multi-tenant vacancy rate of 9.5% with overall quoted gross rental rates averaging $21.95/SF.  The Northwest market is a sharp contrast to the 20% vacancy rate experienced in St Paul CBD.  These two markets show quoted gross rates that are nearly equal at $21.98/SF. 
Total sales volume for Q2 surpassed 1.3 million square feet.  Low interest rates continue to drive sales but inventory is low and investors have few options readily available. 
IN CONCLUSION
Returning to the office remains unknown to many employees.  Much rides on finding a vaccine.  Mass transit and social distancing don’t mix well and parking lots have disappeared in the downtowns.  Winter is calling, so keep wearing your mask and together we will ride this out. 
Written by: Nancy Powell, Vice President

MNCAR: Q1-2020 Office Market Report

Q1-2020 Office Market Vacancy Trend Graph

Q1-2020 Office Market Report

Economic Overview

According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) decreased 30 basis points to 3.1% for February 2020 from 3.4% for February 2019. The unemployment rate for the US was 3.5% in February 2020 down from 3.8% last year. State of Minnesota unemployment rate was 3.1%. The Mpls-St Paul MSA saw an increase in job growth but a decrease in office job growth in professional, financial and information dropping 1,200 during the same period.

Market Overview

The Mpls-St Paul office market, consisting of over 125 msf of space in seven counties across the metro topping 133,000 sf negative absorption for Q1 2020. The vacancy rate for the market stands at 12.0% for all properties. Multi- tenant properties posted 15.6% vacancy with over 48,800 sf positive absorption. The average asking lease rate for Mpls-St Paul came in at $24.59 psf FSG. During Q1 2020 there were 22 construction projects throughout the market totaling just shy of 2.9.

Market Highlights

During the Q1 2020 the market experienced over 1.2 msf of leasing activity in 283 transactions. Class A properties vacancy rate started the year at 9.0% for all properties and 13.1% for multi-tenant properties. For multi-tenant properties the Northwest market posted the lowest vacancy rate at 9.7%, Mpls CBD vacancy was 16.2%, St Paul CBD was 20.5% and suburban markets was 14.4%. Mpls CBD Core market posted the most positive absorption of 141,000 sf with Merrill Corp lease of 78,000 sf topping the list. Southwest market posted the largest negative absorption of 182,000 sf for all property types primarily due to Comcast vacating 108,000 sf and Cliqstudios vacating 104,000 sf in a single tenant properties.
Employment

Employment: up 1,969,253
Area Unemployment: down 3.1
U.S. Unemployment: down 3.5
Office Jobs: down 516,60

Market Recap

Total Inventory: 126,158,494 sf
Absorption: (133,000)
Vacancy: 12%
Asking Rate: $24.59
New Construction: 2,895,944 sf

READ ENTIRE: Q1-2020 OFFICE MARKET REPORT
Written by: MNCAR/Redi Comps

MNCAR: Q1-2020 Industrial Market Report

Q1-2020 Industrial Market Vacancy Rate

MNCAR: Q1-2020 Industrial Market Report
Economic Overview

According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) decreased 30 basis points.  This is 3.1% for February 2020 which is down from 3.4% for February 2019. The unemployment rate for the US was 3.5% in February 2020 down from 3.8% last year. State of Minnesota unemployment rate was 3.1%. The Mpls-St Paul MSA saw an increase in job growth but a decrease in industrial jobs in manufacturing dropping 400 during the same period.

Market Overview

The Mpls-St Paul industrial market consists of 258 msf in eight counties across the metro and posted over 223,000 sf of positive absorption for Q1 2020 while 184,000 sf positive absorption for multi-tenant properties. The overall vacancy rate for the market stands at 4.7% and multi-tenant vacancy was 7.4% for Q1 2020. The average asking lease low rate was $5.81 and high rate was $9.35 NNN for Mpls- St Paul. To date, there are 23 construction projects throughout the market totaling just under 3.7 msf and 5 properties were delivered this quarter with 575,902 sf.

Market Highlights

At the close of Q1 2020, the market experienced over 2.2 msf of leasing activity in 194 transactions with AbelConn leasing the largest space of 110,329 sf in the Northwest market. The Southeast market vacancy rate being the tightest at 4.1% for all properties while the Northwest market topped at 6%. The Northeast market had four of the top five property spots in absorption with Bluvera leasing 93,000 sf, Hajoca leasing 75,845 sf and Lindenmeyr Munrow leasing 60,102 sf. The Northwest market experienced the largest vacancy of Honeywell with 250,000 sf. The Southwest market held the next two spots with Sams Club vacating 180,000 sf and Quad Graphics/ American Color vacating 160,000 sf.
Market Recap

Total Inventory: 258,482,636 sf
Total # of Bldgs: 3,004
Absorption: 223,024
Vacancy: 4.7%
Asking Rate Low: $5.81 NNN
Asking Rate High: $9.35 NNN
Under Construction: 3,728,557 sf

READ ENTIRE: Q1-2020 INDUSTRIAL MARKET REPORT
Written by: MNCAR/Redi Comps

MNCAR Industrial Market Trends | Q2 2019 | Minneapolis-St. Paul

Written by: MNCAR/Redi Comps
Economic Overview
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.
Market Overview
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.
Market Highlights
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
 

MNCAR Office Market Trends | Q2-2019 | Minneapolis-St. Paul

Written By: MNCAR/Redi Comps
Economic Overview
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.

Market Overview
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.
Market Highlights
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
 

MNCAR Industrial Market Trends – Minneapolis-St. Paul (2018-Q4)

INDUSTRIAL MARKET TRENDS | Q4 2018 | Mpls-St. Paul

Economic Overview
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.
Market Overview
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.
Market Highlights
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

TCN Worldwide’s State of the Market: Central Edition (2017-Q3) | by Hugh F. Kelly, PhD, CRE

National and Macroeconomic Overview
Natural catastrophes, including a devastating series of hurricanes and an intense wildfire season in the Western United States, have stressed many regions of the country during the third quarter of 2017. Nevertheless, the economy has thus far held steady within the moderate bounds of growth that have typified the recovery from the Global Financial Crisis of a decade ago. Although short-term impacts of the storms and fires will make headlines, the economy is large and resilient. It should sustain momentum with year-over-year GDP growth of 2.0% – 2.5% for both the remainder of 2017 and through 2018.
Mixed signals typify the reports from key economic sectors. Consumption, which represents about 70 percent of the U.S. economy, had a second quarter uptick as it did a year ago. In 2016, second quarter personal consumption grew at an annualized rate of 3.8 percent (up from 1.8 percent in the first quarter). This year, second quarter spending hit 3.3 percent (up from first quarter’s 1.9 percent). This pattern of a weak first quarter has frequently been seen since 2010. Existing home sales are running at 5.35 million, up just 0.2% year over year, the median home price is up 5.6 percent from a year ago. An increasing trade deficit acts as a depressant on GDP growth, and while real exports have been up 1.9% (as of August), real imports expanded more quickly at 2.8 percent.
Read more: Central_2017_Q3_State_of_Market_web
Economist Hugh F. Kelly PhD, CRE, who leads TCN’s Real Estate Economic Committee, is Clinical Professor at New York University’s Schack Institute of Real Estate where he has taught for 30 years. He is widely cited in the real estate industry and is a frequent speaker around the world.

NAIOP Industrial Space Demand Forecast | 3Qtr-2017

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 gray@naiop.org.

TCN Worldwide’s State of the Market: Central Edition (2017-Q2) | by Hugh F. Kelly, PhD, CRE

National and Macroeconomic Overview

There is no more recurrent question posed in real estate analysis than, “Where are we in the cycle?” The mood amongst economic forecasters can best be described as “benign.” While there is a general consensus that the present expansion is getting long in the tooth, at 96 months and counting, most (correctly) assert that business cycles do not die of old age. For the record, this is already the third longest upcycle since 1850. But it is also the weakest since World War II. The upcycle of the 1990s reached 120 months, but averaged 3.6% annual real GDP growth over that decade. The recovery since the Global Financial Crisis has averaged a bit under 2.1% annually. Given slower labor force growth (even absent a lower participation rate) and decelerating productivity improvements, the baseline growth in the years ahead appears to be in the 1.7% – 1.9% range. Expectations of a return to the growth of the 1990s simply cannot be justified in the numbers.
Some comfort is being taken by the absence of typical signs of economic overheating that often precede recessions. Inflation remains quiescent, with low energy prices driving prices at the gas pump down to near $2.00 per gallon during the peak summer travel season. The Federal Reserve has been gradually raising its benchmark rates, but is being careful to avoid squeezing economic growth in the process. The “Trump Bump” in stock prices has shown staying power on Wall Street, but as the year advances it becomes clearer that the agenda of tax reform, infrastructure spending, Dodd-Frank rollback, and entitlement reduction will not be accomplished in 2017. Hence, there is probably greater fragility in the economy than the consensus acknowledges and risk is present from either domestic disappointments or international disruption.
Read more: Central_2017_Q2_State_of_Market_web
Economist Hugh F. Kelly PhD, CRE, who leads TCN’s Real Estate Economic Committee, is Clinical Professor at New York University’s Schack Institute of Real Estate where he has taught for 30 years. He is widely cited in the real estate industry and is a frequent speaker around the world.