The Minneapolis-St. Paul industrial market bounced back during the second quarter of the year, posting positive net absorption even as developers continued to add new space and vacancy rates edged higher, according to CBRE‘s latest market report.
In its second quarter Minneapolis Market Figures report, CBRE said that the Twin Cities industrial market recorded nearly 488,000 square feet of positive net absorption during the second quarter, a significant turnaround from the negative 112,000 square feet posted during the first quarter.
While the second-quarter total trailed the 574,000 square feet of net absorption recorded a year earlier, it represented an improvement of roughly 600,000 square feet from the previous quarter, according to CBRE.
The return to positive absorption came despite several major tenant move-outs. CBRE pointed to Sportsman’s Guide vacating 423,000 square feet in the South Central submarket, My Pillow leaving 375,000 square feet in the Southwest and Bernard Group vacating 348,000 square feet before relocating to a newly constructed facility elsewhere in the Southwest.
Newer buildings continued to outperform older industrial properties. Modern facilities built between 2020 and 2026 generated nearly 1.4 million square feet of positive net absorption during the quarter. CBRE said that this highlights the continued demand for high-quality industrial space.
Construction activity also accelerated. Developers had 3.4 million square feet of industrial under construction in the Minneapolis market as of the close of the second quarter, with speculative projects accounting for just over half of that figure. More than 1.8 million square feet of new projects broke ground during the quarter, pushing the amount of industrial space under construction up 33.2% from the first quarter.
The market also welcomed nearly 1.1 million square feet of newly completed industrial space during the second quarter. Developers delivered seven industrial buildings, three in the Northwest submarket. Two speculative developments — Brockton Business Park I in Corcoran and Cobalt Business Center in Mendota Heights — were completed fully preleased, contributing about 460,000 square feet of positive absorption, according to CBRE.
Not all the news was good, though. Even with healthy leasing activity and positive absorption, vacancy continued to climb slightly. The overall industrial vacancy rate reached 4.4% during the second quarter, increasing 20 basis points from the previous quarter and 30 basis points from a year ago.
What’s behind the increase? CBRE said the rise in vacancy was centered in mostly older industrial buildings. Properties built in 2022 or later recorded a 20-basis-point decline in vacancy, underscoring tenants’ preference for modern industrial facilities with updated features.
Average asking rents softened somewhat, falling to $9.12 per square foot on a triple-net basis. That represented a 2% quarterly decline and a 4.3% drop from one year earlier. Even so, rents remain above historical levels, sitting 3.4% higher in the second quarter than where they stood three years ago.
Leasing activity totaled more than 2.7 million square feet during the second quarter. That’s down 24.4% from the first quarter and 27.1% from a year ago. Still, the average lease size climbed above 20,000 square feet, rising nearly 17% from the previous quarter and 20% year-over-year.
The Northwest remained the region’s busiest leasing market with more than 1 million square feet of completed transactions, followed by the Southwest with 688,000 square feet. Among the quarter’s largest deals were Medline’s new 195,000-square-foot lease in the Northwest, Bernard Group’s 189,000-square-foot lease in the Southwest and Anteris Technologies’ 168,000-square-foot lease in the Northwest.
