Solomon Poretsky once worked in commercial real estate in California. He’s seen, then, the negative impact that over-development can bring once an economy turns sour.
Today, though, Poretsky works in the Twin Cities region as regional manager in the Bloomington, Minn.-based office of Marcus & Millichap Real Estate Investment Services. These days he sees the benefits of a conservative approach to development.
“We have a strong economy here in Minneapolis, all things considered,” Poretsky said. “And we’ve had a responsible decrease in development during these slower times. That combination has left us with low vacancy rates in most market sectors.”
This includes the retail market, the one market that has been hit the hardest in most major cities across the United States.
But in the Twin Cities area, vacancy rates in the retail sector are actually going down.
“We’re seeing more jobs being created here, and we haven’t had a lot of retail come online in recent years,” Poretsky said. “That’s resulted in low retail vacancy rates.”
Another trend has helped keep store vacancies low: Consumers in Minneapolis-St. Paul prefer smaller homes close to job centers these days. And this has helped boost at least a modest recovery in the retail sector in the Twin Cities’ inner-ring suburbs and core areas, according to a recent report from Marcus & Millichap.
In its second quarter market report, Marcus & Millichap points to the recent move of US Bancorp, which moved 1,600 workers from St. Paul to the Meridian Crossing office complex in Richfield, Minn. The move, Marcus & Millichap wrote, highlights what appears to be a new trend in the Twin Cities: Both large companies and a growing number of residents are moving back into the core area of the Twin Cities.
This means good news for the retail market in the Twin Cities. According to Marcus & Millichap, vacancy rates in this sector should drop 30 basis points to 8.9 percent throughout 2011. The vacancy rate in this sector fell 30 basis points last year, too.
And with good news in the vacancy arena comes good news regarding rents.
According to Marcus & Millichap, rents should increase slightly in the retail sector in 2011, too. According to the second quarter report, Twin Cities retail operators will raise asking rents 0.2 percent to $17.20 a square foot throughout the rest of the year. Effective rents will rise, too, 0.8 percent to $14.77 a square foot. Concessions are expected to slip to 14.1 percent of asking rents.
Little of this came as a surprise to Poretsky.
“As the economy begins to recover, and we still keep completions down, we should fill up vacant space in all of our markets,” he said.
Poretsky could only point to one market – multi-family – that has seen relatively high construction in the Twin Cities since the economy began its slump. But even this sector isn’t being overbuilt, he said.
“If you look at the number of units that we are going to build relative to the population growth in the metro area and the job creation in the area, you’ll see that relative to projected demand, our multi-family construction is actually fairly light,” Poretsky said.
