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Industrial Real Estate

THE ECONOMIC OUTLOOK FOR CRE INVESTMENTS

THE ECONOMIC OUTLOOK FOR CRE INVESTMENTS WITH DR. MARK DOTZOUR

DESCRIPTION:
We are proud to present this special TCN Worldwide webinar featuring Dr. Mark Dotzour.  He is a frequent participant at TCN conferences and one of the truly ‘entertaining economists’ to provide an economic outlook and forecast for TCN members as well as their clients, prospects, friends, and family.
Join TCN Worldwide and Dr. Mark Dotzour as he discusses:

The outlook for job growth in the US.
Will the recovery be quick or prolonged?
What is the outlook for inflation in 2021 and beyond?
The outlook for borrowing rates
What is the outlook for cap rates?
What is the outlook for investor demand for US commercial real estate?

SPECIAL GUEST SPEAKER:

Dr. Mark G. Dotzour (CRE Economist)
Former Chief Economist and Director of Research at Texas A & M University
Dr. Mark G. Dotzour is a real estate economist who served for 18 years as Chief Economist of the Real Estate Center at Texas A&M University in College Station.  He has given more than 1,450 presentations to more than 250,000 people.  He has written over 90 articles for magazines and journals.
Dr. Dotzour makes complex economic issues easily understandable.  Above all, Mark’s goal is to provide his audience with a “tool kit” of useful information that will help them make good business decisions.  Ultimately, helping their families, their clients, and their company.
His research findings have appeared in the Wall Street Journal, USA Today, Money Magazine and Business Week.  Similarly, his clients include banks, private equity firms, real estate investment trusts, construction firms, engineering companies, wealth managers, private foundations, and commercial and residential brokerage firms.  In addition, he has made presentations to local and national trade associations all over America.
Special thanks to TCN Worldwide for hosting this webinar.
Questions? Call Paramount Real Estate Corporation.

FOCUS ON WHAT’S IMPORTANT

Focus on what's important post photo

FOCUS ON WHAT’S IMPORTANT
Companies searching for new office or industrial space in today’s soft office market, or conversely today’s healthy industrial market and listing brokers and landlords are guilty of this as well… They often tend to focus almost exclusively on rental rate.  In other words, the lowest price should be enough to positively influence a tenant’s decision to lease space in a building.  The result? We’re “commoditizing” commercial space alternatives while losing the focus on what is right and best for the tenant.
SPACE ISSUES BEYOND PRICE
Let me be the first to say that economics are always important and competing buildings must be reasonably similar.  However, economics are not the most important element when it comes to making a real estate decision.  I have often told clients, “What difference does it make if the landlord provides the space at no cost, if the space is not functional and does not effectively work for you?”  Retail clients generally seem to have a better handle on weighing the intangibles when they make space decisions.  They understand that there are issues far more important than price.  Issues such as exposure, vehicle traffic counts, ease of access, parking and neighboring tenants.  Issues that will impact their long‐term success more than a marginal reduction in their base rental rate.
TOTAL COST SOLUTION
So many components go into a good real estate decision, and price is only one of those components.  Tenants need to look at a “total cost solution” rather than just a “rental rate” solution.  The latter is the proverbial tail wagging the dog kind of decision, and decisions like that never work well over the long term.  That’s why establishing a preliminary budget is critical to the process.  So that companies don’t waste time looking at what they can’t afford.  Companies often do themselves a disservice by discounting the importance that a well thought out facilities plan plays in their long‐term success.  Space, like any other component of a firm’s business plan, should function strategically.  Ultimately, ensuring long‐term success for the firm.  The list of items that ensure long‐term success generally relegates price to the lower tier of importance.
RANKING CRITICAL ISSUES
Companies must address, evaluate and rank the importance of critical issues.  These may include parking availability, access, visibility, building efficiency, flexibility to expand and contract, on‐site or close‐by amenities, public transportation availability, security, sustainability issues, building management, landlord financial viability ‐‐‐ and, obviously, the financial structure.  Whether internally generated or broker generated, tenants must understand the total cost of the deal.  One deal may provide more dollars for tenant improvements; another deal may offer less tenant improvement dollars but more free rent.  Yet another may offer to graduate or step the rent and pay moving costs.  And in the end, a simple consideration like ease of client access or proximity to public transportation may trump the lower base rent deal.
Guard against making an impulsive, “head in the sand” facility evaluation.  Select a member of your team and a competent real estate broker who will ensure that your firm makes a well thought out space decision, not a decision based on a single issue like rental rate.  Make sure you have completed the proper due diligence before signing on the bottom line!
NEED HELP FINDING THE RIGHT SPACE?
Reach out to one of our
TRUSTED. DEDICATED. EXPERIENCED.
brokers at Paramount Real Estate Corporation: 
Industrial: Fred Hedberg, CCIM, SIOR, Principal
Phil Simonet, Principal
John Young, CCIM, Vice President
Joseph Schultz, Associate
Jack Buttenhoff, Associate
Office: Nancy Powell, Vice President

Q3 2020 INDUSTRIAL MARKET UPDATE

Q3 2020 Industrial Market Update

Q3 2020 INDUSTRIAL MARKET UPDATE
Economic Overview
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. Also a decrease in industrial job growth in manufacturing dropping 11,200 during the same period.
Market Overview
The Mpls-St Paul industrial market consists of 261 msf in eight counties across the metro and posted over 682,000 sf of positive absorption for Q3 2020 while multi-tenant properties posted 152,000 sf positive absorption.  The overall vacancy rate for the market stands at 4.9% and multi-tenant vacancy increased to 8.0% for Q3 2020.  The average asking lease low rate was $5.97 and high rate was $9.57 NNN for Mpls-St Paul. To date, there are 19 construction projects throughout the market totaling 2.5 msf and 17 properties were delivered year-to-date with 2.1 msf.
Market Highlights
At the close of Q3 2020, the market experienced over 2.5 msf of leasing activity in 180 transactions.  ShopJimmy was the largest space leasing 413,000 sf in the Southeast market.  The Southeast and Northeast markets vacancy rate being the tightest at 3.9% and 3.8% for all properties while the Southwest market topped at 6.6%.  The Northeast market had two of the top five property spots in absorption with Target buying 399,000 sf and Tomas Commercial buying 140,000 sf property.  The Northeast market experienced the largest vacancy of Modern Tool with 180,000 sf.  Sixty three properties sold with over 2 msf for $124.8 million.
Methodology
The Mpls-St Paul market consists of single and multi-tenant industrial 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, Washington and Wright counties.  The tracked set does not include selfstorage facilities and non-conforming property types such as grain elevators or fuel storage facilities.  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 NNN basis.
Reach out to one of our Industrial Agents with questions:
Fred Hedberg, CCIM, SIOR, Principal
Phil Simonet, Principal
John Young, CCIM, Vice President
Joseph Schultz, Associate
Jack Buttenhoff, Associate
View Full Report: Q3 2020 MNCAR Industrial Market Report
Source: Minnesota Association of Realtors (MNCAR)

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

EDEN PRAIRIE INDUSTRIAL BUILDING SOLD

EDEN PRAIRIE INDUSTRIAL BUILDING SOLD
Paramount Real Estate Corp | TCN Worldwide is very pleased to announce the Sale of 6450 Carlson Drive | Eden Prairie, MN

HISTORY OF THE PROPERTY
6450 Carlson Drive is a 42,760 multi-tenant office-warehouse building located off Highway 62 and Interstate 494.  The Eden Prairie industrial building situated on 3.97 acres, was built in 1986.  When a long term tenant vacated the majority of the building, Paramount was engaged to market the property.  Initially they marketed it as a 36,885 square foot vacancy For Lease.

PARAMOUNT’S CLIENT & THE DEAL
Bloomington-based Paramount Real Estate Corporation brokers, Jeffrey Swanson, Associate and Fred Hedberg, President represented the seller in this transaction.  FHM Partners, the sellers, consist of a local managing partner and two out of state passive owners.
“This Eden Prairie industrial building was on the market For Lease.  We were in the midst of negotiating a 10-year lease for the building’s vacant space.  This is when a user/buyer made an unsolicited offer to purchase the building.  Paramount advised FHM Partners on the pros and cons of each opportunity.  The partners decided that it was in their best interest to sell.  The transaction moved forward quickly with only a slight delay due to a change in financing that pushed the closing out 10 extra days,” commented Jeff Swanson.

THE NEW OWNER
BLCKGLD, LLC, a Minnesota owned LLC, is the entity that recently purchased this office-warehouse building at 6450 Carlson Drive.  With their upcoming expansion, a company with common ownership to BLCKGLD, LLC plans to remodel and occupy the entire building.

In conclusion, Paramount congratulates the West Team for closing on this deal! 

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

TWIN CITIES MARKET SNAPSHOT

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%.  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 and functional.  They want space that will retain and attract top talent in the current tight labor market.

TCN Worldwide Top Industrial Deals! (2018-Q2)

TCN Worldwide Top Industrial Deals! (2018-Q2)

John Young, CCIM’s transaction with Warner’s Stellian made TCN Worldwide’s Top Industrial Deals (Q2-2018)
Read more: 2018 Qtr2 Commercial Focus
Warner’s Stellian purchased an 80,000 SF industrial building located at 2601 Broadway Street NE, Minneapolis.
TCN Worldwide, a consortium of independent commercial real estate firms, provides complete integrated real estate solutions locally and internationally.  With approximately $58.6 billion in annual transactions, TCN Worldwide ranks as one of the largest service providers in the industry.  An extensive range of real estate services coupled with a personal commitment to exceed client expectations.  This allows TCN Worldwide to be a leader within the commercial real estate industry.  Made up of over 5,000 commercial real estate professionals allows them to serve more than 200 primary and secondary markets worldwide.

Press Release | Joseph Schultz Joins Industrial Brokerage Team

Is Your Physical Space Helping or Hurting Your Hiring Efforts?

JOSEPH SCHULTZ JOINS PARAMOUNT REAL ESTATE CORP | TCN WORLDWIDE AS LEASING AND SALES ASSOCIATE
MINNEAPOLIS, MN.  Paramount Real Estate Corp, Bloomington, MN is pleased to announce the addition of Joseph Schultz to the industrial sales and leasing team.  He will be working with Philip Simonet and John Young, CCIM.  Focusing his efforts on agency leasing, new business development and buyer/tenant representation in the southeast and northeast Twin Cities submarkets.
Joseph was born and raised a Minnesotan. He graduated from Saint Thomas Academy and attended college at Gustavus Adolphus College.  Therefore, he earned a Bachelor’s degree in Economics with a focus in Economic Analysis.  He comes to Paramount with real estate experience while previously working as an intern at Cushman & Wakefield before joining Paramount.
In his spare time, Joseph enjoys watching sports, particularly the Minnesota Vikings, and spending time with family and friends.

Press Release | Young Represents Warners’ Stellian in Building Purchase

Is Your Physical Space Helping or Hurting Your Hiring Efforts?

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 the client 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 the sale of appliance.  Currently, they have nine retail locations across the Twin Cities.  They commit to providing a high level of customer service.  Being environmentally friendly is also a priority.  They recycle all appliance packaging and utilize more fuel efficient vehicles that automatically shut off after five minutes of idle.