As in most markets across the country, new industrial construction has slowed in the Minneapolis-St. Paul region. But the new construction that has delivered? It is filling up fast.
That’s the news from Colliers’ second-quarter Twin Cities industrial report released earlier this month.
How strong has the demand been for new industrial construction in and around Minneapolis-St. Paul? Colliers reported that as of the end of the second quarter, there was no space available in industrial buildings that had been completed in 2020 and 2021.
Don’t, though, expect a surge of new industrial construction, especially speculative projects, in the coming months. High interest rates and construction costs have slowed construction activity in this market. And those projects that are getting built most often already have tenants in place.
According to Colliers, build-to-suit projects are driving industrial absorption in the Twin Cities market. These projects accounted for 65.9% of total net absorption in the second quarter.
Colliers reported that the vacancy rate in the Twin Cities industrial market rose to 4.4% in the second quarter. That figure stood at 3.2% in the second quarter of 2023.
The market saw 1.3 million square feet of net absorption during the quarter while 2.8 million square feet of new industrial space is currently under construction, according to Colliers. That under-construciton figure is a big dip from the second quarter of 2023, when 10.3 million square feet of new industrial space was under construction.
Space that is leasing is leasing up at higher rates. Colliers reported that the overall asking lease rate is up from last year, having risen to $9.55 a square foot. That is up from $7.75 a square foot a year ago.
Robin Zellmer, executive vice president with Colliers, said in the report that these are tough times for industrial users seeking space.
“Tenants are facing a tough time right now with no standardized rates and everything being negotiable,” Zellmer was quoted in the report. “The location and quality of the building heavily influences rates. We’re seeing softening rates outside of the core areas, but in the core tenants are struggling to renew their leases because of the new, higher market rates.”
