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MNCAR: Q1-2020 Industrial Market Report

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) 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 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 REPORT: Q1-2020_Mpls-St_Paul_Industrial_Market_Report

TWIN CITIES MARKET SNAPSHOT

The Minneapolis-St. Paul Real Commercial Estate Market continues to perform admirably with office and industrial sectors demonstrating excellent performance throughout 2019.  The Markets characteristics remain upbeat and include positive net absorption of vacant space, moderate to low vacancy rates and measured new speculative development.  Economic conditions remain favorable however, recent statics raise concern for the continued overall economic growth in Minnesota and the USA.   While inflation continues to remain low at about 2% (annualized), unemployment has increased from 2.5% to 2.9% and median income for Minnesota households as stagnated year over year at $70,300-both still much better numbers than the national averages of 3.4% unemployment and median household income of $63,179 respectively. The 15 month trade war with China combined with all of the uncertainty in Washington DC (impeachment and gridlock) and slowing business investment-down 1% on an annualized rate last quarter create potential headwinds to sustained future economic growth.

Industrial Market


 
Industrial has been the best performing asset class of real estate since the Great Recession in 2009.  Vacancy rates are at an all-time low (4.9%) in a Twin City universe of 248 million square feet and have decreases by 1% since the beginning of 2019.

Net Absorption of available space stands at 2.73 million square feet through the third quarter of this year with bulk (high-bay) warehouse experiencing 1.74 million square feet of net absorption. Driving the net absorption has been e-commerce related companies localizing the distribution of almost everything now available on the internet.
To date there are 27 industrial projects under construction totaling 3.6 million square feet.   1.9 million square feet has already been delivered to the market.

Collectively, what all this most likely indicates is a continuation, at least through 2020, of relatively good conditions and performance for the industrial market.  The two current deterring factors, other than an economic slowdown, are the cost of tenant improvements and finding and hiring employees.

Office Market

The office market continues its long standing recovery albeit some sub markets are stronger than others.   The overall office vacancy rate for all Twin Cities office properties is 11.8%, which is down .8% from January 2019, however within multi-tenant properties the vacancy rate is 15.4%.  The northeast office market has the lowest vacancy rate at 8.6% and St. Paul CBD has the highest vacancy rate approaching 20%. Class A multi-tenant office space has the lowest vacancy rate at 12.5%, Class B Office space is at 17.7% and Class C is 13.8%.
Net absorption Year to Date is 363,871 square feet.  Actual absorption Year to Date is 504,247 square feet, however sublease space create 128,052 square feet of negative absorption.

The office market performance has instilled enough confidence in a local developer to spec a 361,104 square foot office building in the West End mixed use development named 10 West End. Net rental rates are projected to start at $25.50/sf.

One new office market characteristic that has been gaining momentum is the demand for building amenities.  Many office buildings have completed or are planning to complete updates to building common areas, add amenities such as work out areas, coffee bars, common area meeting spaces, food service, and concierge services among other things.  Many of today’s sophisticated tenants want space that is fun, functional and will retain and attract top talent in the current tight labor market.

Press Release | Young Represents Warners’ Stellian in Building Purchase

Minneapolis, Minnesota – Paramount Real Estate Corporation’s, John Young, Vice President of Sales and Leasing, represented Warners’ Stellian in their purchase of an 80,000 square foot industrial building in Minneapolis at 2601 Broadway Street Northeast. The building will house a new retail store and will be a main distribution point for various appliances sold by the company. Mr. Young helped Warners’ Stellian identify the building, negotiate for its purchase, secure approval from Minneapolis’ Planning Commission, and guide the company through its due diligence.
The building was home to Boyer Ford Trucks, who moved to another location in Minneapolis. Boyer did not need the large warehouse and wanted to right-size its operation. The building is located just east of Stinson Boulevard on the north side of Broadway. It has great visibility from I-35W and easy access from Stinson Boulevard and Industrial Boulevard.
Warners’ Stellian is a 60-year old family operated business specializing in appliance sales. They have nine retail locations across the Twin Cities. Their commitment to customer service is matched by their commitment to the environment. They recycle all of the packaging from the appliances and utilize more fuel efficient vehicles that automatically shut off after five minutes of idle.

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.

The Cost of Doing Business in Minnesota | MNCAR

By Liz Wolf | MNCAR
There’s no question that Minnesota has among the highest property taxes in the nation – and property taxes are being disproportionally collected from commercial and industrial properties.
Commercial and industrial properties account for less than 13 percent of the total property market value in Minnesota, yet they account for more than 30 percent of all property taxes collected.
“Minnesota’s classification of property taxes places an undue burden on commercial and industrial properties,” says Matt Anfang, executive director of MNCAR.
What exactly is the C/I tax?
Over and above the property tax that a business pays—like any property owner– to the local city, county and school district, it also pays an additional state property tax that goes to the state’s general fund. This statewide business property tax was enacted in 2001 and automatically increases with inflation each year.
Read more.