The COVID-19 pandemic and the restrictions that local governments have placed on businesses continue to devastate several commercial sectors. The office, retail, hospitality and entertainment sectors across the country have been hit particularly hard. But one sector that continues to thrive? Industrial.
And the Twin Cities is no exception.
According to the latest research from JLL, the Minneapolis-St. Paul industrial market ended 2020 with 766,074 square feet of positive absorption for the year and a market vacancy rate of just 6 percent in the fourth quarter.
According to JLL, 642,000 square feet of new industrial space was already under construction as of the close of the fourth quarter of last year.
Dan Larew, vice president with the Minneapolis office of JLL, said that the future looks bright for industrial in this market. And, he added, this bright future isn’t coming at the expense of retail.
The growing demand for ecommerce, of course, continues to drive the Twin Cities industrial market. As more people order products online, companies need to discover ways to get these items to customers faster. That’s where all the distribution centers popping up across the country come in. As Larew says, customers don’t want their products delivered in five days. They want them in two days … or less.
“At the end of the day, the factors that make for a strong industrial market were not impacted by the pandemic,” Larew said. “Yes, there was a shock when the pandemic first hit. We did see a slowdown in the first and second quarter of 2020. But the dynamics pushing industrial demand — that surge in ecommerce — have not fundamentally changed.”
The pandemic, in fact, has only boosted the demand for online shopping that had already existed before the government stay-at-home orders and business restrictions that hit the country starting in the middle of March.
“I am not one of those who say traditional retail is dead,” Larew said. “The retail and industrial markets instead are merging, more than one is dying and one is growing. Retail, at the end of the day, is what is driving the whole rise in the industrial market. Consumers are just changing the way we buy and sell.”
Of course, good news is far from rare in the industrial sector. As JLL points out in its report, since 2018 the Twin Cities industrial market has captured at least $1 billion in investment annually. For both warehouse and flex assets, that investment peaked at $1.7 billion in 2019, with 2020 closely trailing with $1.6 billion in total transaction volume.
Larew said that there are plenty of reasons for industrial users to seek space in the Twin Cities market. First, there’s the population. Larew says Minneapolis-St. Paul boasts a highly educated workforce. That makes it easy for industrial users to find the right people to staff their facilities.
The Twin Cities also offers a high quality of life at an affordable price. It boasts a balanced and diverse economy. As Larew says, the Twin Cities doesn’t rely solely on one industry.
“We don’t just rely on oil or tourism,” Larew said. “We have life sciences, a strong banking presence, a strong manufacturing presence. That helps mitigate any ebbs and flows in the economy. We don’t get the lowest lows that some other markets get. Some of those markets might have higher highs, but we are protected from the biggest downturns.”
Larew said that industrial construction will rise during 2021, and most of these new buildings will be speculative. JLL tracks demand, and is currently tracking groups that, in total, are looking to lease or purchase 8 million square feet of industrial space in the Twin Cities market.
Not all of this demand will come to fruition, of course, but the fact that there is so much activity is evidence that 2021 will be a busy year for industrial.
“We see demand outweighing supply in 2021,” Larew said. “We see groups willing to take a risk on constructing new spec projects. There is a great demand for quality, institutional industrial space here.”