The industrial real estate market in the Twin Cities demonstrated resilience throughout 2024, navigating a tightening development pipeline and constrained supply.
According to Colliers’ fourth-quarter 2024 Twin Cities industrial report, the region’s industrial sector maintained strong absorption rates last year, with over 1 million square feet absorbed per quarter. While demand has eased from its pandemic-era peak, the market remains robust, driven by low vacancy rates and escalating rents.
Vacancy in the Twin Cities stabilized at 4.2% in 2024, well below national and Midwest averages. This tight market has empowered landlords to push rents higher while reducing concessions, creating challenges for tenants. The manufacturing and core metro warehouse-distribution subtypes are particularly constrained, with vacancies as low as 2.3% and 2.5%, respectively. These conditions have laid the groundwork for speculative development to potentially rise in 2025, contingent on economic factors like interest rate adjustments.
The industrial market’s stability is highlighted by overall absorption levels, which fell just 5% year over year, indicating consistent demand. The warehouse-distribution subtype led absorption gains, with a 37% increase compared to 2023. Much of this activity was concentrated in the outer metro, where new developments are underway, though core metro properties also saw significant leasing activity, driving vacancy rates down further.
Major transactions in the fourth quarter underscored the strength of the market. Notable occupancies included NFI’s move into Dayton 94, Heliene Solar’s occupation of the Diamond Lake Distribution Center, and GN Resound’s lease of the former Shutterfly building in the Southwest submarket. Additional significant users included MTL in the Northwest, Amazon in Golden Valley, the Metro Council and Entourage Events in Minneapolis, and BE Pressure in Shakopee.
While larger spaces saw robust demand, smaller spaces in the 10,000 to 20,000 square foot range were the hardest for tenants to secure. These spaces often feature varying levels of office build-out, adding costs that can deter potential occupants. Landlords have minimized concessions, leaving tenants to shoulder more of the financial burden for tenant improvements. This has particularly impacted smaller tenants seeking to expand, as higher market rates and limited incentives make such moves financially challenging. Renewals, too, have become costly, with significant rent increases further complicating expansion plans.
Sales volume in the Twin Cities industrial market improved notably in 2024, reaching $1.5 billion—a 23% increase over 2023. The uptick reflects growing investor confidence in the region, despite macroeconomic uncertainties. However, new construction activity slowed, with space delivered in 2024 falling by 38% compared to the previous year. Still, more than 700,000 square feet of new projects broke ground in the fourth quarter, signaling ongoing developer interest.
The combination of strong absorption, constrained supply, and stabilizing vacancy rates has created a competitive landscape. Tenants, particularly those in Manufacturing and Warehouse-Distribution, are facing higher costs, while landlords continue to capitalize on the favorable market dynamics. As the market heads into 2025, speculative development is poised to increase, provided economic conditions, including interest rates, remain conducive.
