The Minneapolis-St. Paul commercial real estate market remains one of the strongest in the Midwest, with the market’s overall vacancy rate holding at a low 10.8 percent at the end of the first half of 2017.
That’s the good news from Cushman & Wakefield NorthMarq’s Compass report for the first half of the year. According to the report, vacancy rates remain low for all major product types in the Twin Cities area for the office, industrial and retail sectors.
This is the case even though major tenants in the retail sector are closing their doors and some in the office sector are consolidating multiple spaces into single locations. Cushman & Wakefield reported that users absorbed 339,563 square feet in the first half of 2017.
That’s a solid number. But Cushman & Wakefield researchers are projecting a big increase in absorption during the next six months, with as much as 1.625 million square feet of space to be absorbed by industrial, retail and office tenants. If that happens, it would bring the year-end absorption total to just a bit under 2 million square feet.
Construction activity is strong here, too. Cushman & Wakefield NorthMarq reports that developers delivered 836,000 square feet of new office, industrial and retail space in the first half of 2017. Most of this new space was pre-leased or is quickly landing users.
The amount of new construction doesn’t seem quite as robust when compared to the numbers the Twin Cities recorded in recent years. In 2016, developers delivered 1.9 million square feet of new office, retail and industrial space, for instance. But Cushman & Wakefield NorthMarq officials say that the second half of the year should see construction and absorption numbers both rise.
“The Twin Cities’ multi-tenant market isn’t moving with the urgency or intensity of recent years, but demand and activity have remained remarkably strong,” said Mike Ohmes, executive vice president for transaction and advisory services with Cushman & Wakefield NorthMarq. “A more careful approach by developers and users has caused our transaction volume to be lower than expected so far this year, but we project a much more active second half of the year.”
Company officials, though, do have some concerns. The biggest center on the retail sector. Cushman & Wakefield NorthMarq pointed to the closures by big chains such as Sears and J.C. Penney’s. These closures are leaving large blocks of retail space unfilled in the market.
But these open spaces do present opportunities, according to the Compass report. For instance, some landlords are looking at the closing of Sears stores as a chance to divide their former one-user spaces into multiple and, perhaps, more interesting concepts.
Even the area’s hotel market is steady. Cushman & Wakefield NorthMarq reported that about 5,000 new hotel rooms are in some stage of either planning or development.