Sure, there are plenty of negative headlines about brick-and-mortar retail, what with the high-profile closings of such retailers as Joann Fabrics and Rue21. But if you look beyond the headlines? You’ll see that the retail sector has proven resilient since the COVID pandemic.
That includes in the Minneapolis-St. Paul region, where several brands new to the area are entering the market and where retailers focusing both on their brick-and-mortar and online locations are bringing in a steady stream of business.
Colliers reported in its first quarter Twin Cities retail report that the vacancy rate for the retail sector here fell to 5.6% during the first three months of the year. That represents a drop of 10.2% from the first quarter of last year.
What’s behind the retail success story in the Twin Cities region? We spoke with Terese Reiling-Holden, senior vice president with the Minneapolis-St. Paul retail team with Colliers, about the solid retail sector in the area. Here is what she had to say.
Terese Reiling-Holden, SVP, Colliers (Photo courtesy of Colliers.)
Are you still seeing strong demand from tenants for retail space in the Minneapolis-St. Paul market, including its suburban areas?
Terese Reiling-Holden: During the pandemic, we were worried about an influx of vacant space from tenants who didn’t have capital on hand. We did see vacant space come back on the market. But it got absorbed so fast. Now we have a record-low vacancy rate in the Twin Cities market. It’s probably the lowest I’ve seen since I’ve been in this business.
There hasn’t been a lot of new retail development of any substantial size in the Twin Cities lately. Because of the lack of new construction and the strong consumer demand we are at this unprecedented low vacancy rate.
It can be challenging for retailers to find opportunities because there isn’t a lot of space available. This has forced brokers to be more diligent to uncover opportunities that maybe in the past retailers would not have considered. We must work to uncover what might be more creative options for our retail clients.
How do you get creative when trying to find space for your retail clients?
Reiling-Holden: You have to call around on real estate that doesn’t have an “available” sign on it. You might have to go to the tax records and figure out who owns it. That can be challenging because the tax records don’t always include all the information you need. If you are lucky, you’ll find something where a lease might be expiring. You might find an owner who wants to enhance a property’s valuation by adding a national credit tenant.
Sometimes you need to cobble together parcels of land and make sure the puzzle pieces fit together properly.
Are you seeing retailers new to the Twin Cities area moving into the market?
Reiling-Holden: One of the interesting things I’ve seen is the sheer volume of franchises entering the market post pandemic. They have been instrumental in bringing our vacancy rate down. There has been so much franchise activity in the last three to four years. They have absorbed some of the smaller shop space.
We are seeing a lot of specialty fitness concepts opening. We have seen med spa concepts entering the market. And, of course, there are always new food concepts.
At the same time, we are seeing a lot of national expansion on the part of established retailers. Consumers are spending so much. I did a Dick’s Public Lands land deal recently. National retailers like J. Crew and EVEREVE have been active. A lot of the national apparel groups were very active in 2024 for store openings in 2025.
What types of retailers are performing well today in the Twin Cities?
Reiling-Holden: Consumers are out there spending. There is some speculation that people are early purchasing ahead of tariff hikes.
But we are seeing foot traffic increasing for furniture and home furnishings stores and for home improvement stores. Electronics stores are seeing increased traffic. A lot of people are out browsing and comparing pricing amid inflation concerns. Traffic to clothing stores has risen, too.
Since the pandemic, restaurant visits have been on the rise, too. There has been a strong rebound in people dining out. Post pandemic we did see restaurants close. But those spaces have been absorbed so fast. Today, we’ll see 10 inquiries on second-generation restaurant space for every space that is available. Restaurants remain a strong category. That is surprising with all the pressures they are under.
Miniso is expanding here. That’s a Chinese retailer and variety store that is having good success. They sell everything from stationery to makeup to toys. The stores are bright and cheerful. Customers really like these. And the price point draws in a variety of customers.
Ross Dress for Less has signed a bunch of leases in the Twin Cities market. I have seen them pop up in a bunch of plans.
What about in the CBDs here? How is the retail sector performing there?
Reiling-Holden: The Minneapolis and St. Paul CBDs are carrying more vacancies. Downtown St. Paul is really struggling with vacancies. Until more people are back working in the office more frequently, retail in the CBD will continue to struggle. It’s a bit better in downtown Minneapolis than it is in downtown St. Paul.
Is leasing activity in the retail sector holding steady?
Reiling-Holden: It is. In the third quarter of 2024, we saw 186 retail leases signed for about 670,000 square feet. A total of 13 of those were for leases over 10,000 square feet. Most of those deals were for 10,000 square feet or less. In the fourth quarter of last year, we saw 118 lease deals for 415,000 square feet, eight of which were for more than 10,000 square feet.
In the first quarter of this year, we saw 157 retail leases for 457,000 square feet. Only five of those lease deals were over 10,000 square feet. And 22 of those leases were for 1,000 square feet or less.
There has been a lot of leasing activity from small businesses. I worked with a lot of small businesses that people took from their homes to open their first brick-and-mortar concept. It’s fun to work with those businesses. They were predominantly women-owned. They included everything from florists and interior designers to more service-oriented businesses like spas and real estate offices.
A lot of people were concerned about the growth of online sales and how that was going to cause a big problem for traditional brick-and-mortar. But while online sales have grown, they haven’t lessened the desire for people to go out and physically shop for things.
Do you think we’ll see much new retail development this year in the Twin Cities market?
Reiling-Holden: The big challenge with development is the cost. Construction costs have gone up so much. Land costs, too. You have to be in a higher rent range to make new development work. Not a lot of retailers can afford that. The big national corporations can. They have the infrastructure in place to spread costs out. Local businesses, though, can’t afford those higher rents. There is a limited pool of retailers who can afford to rent in those new developments.
