How strong of a year was 2022 for the industrial market in the Minneapolis area? This sector continued to boom in 2022, with demand for warehouse buildings and distribution centers soaring throughout the last 12 months.
Consider the third quarter Industrial Insight report released by JLL. The report said that the Minneapolis-St. Paul area absorbed nearly 2.2 million square feet of industrial space in the third quarter of the year.
That pushed the total year-to-date absorption level here to more than 5 million square feet as the end of the third quarter.
As demand for industrial remained high throughout the year, developers responded. JLL reported that more than 2.6 million square feet of spec industrial development broke ground in the third quarter of 2022. More than 4 million square feet of spec industrial construction will have been completed in 2023 in the Minneapolis-St. Paul market, JLL says.
But what about rising interest rates? They have impacted the industrial market in the Twin Cities area. But even with this pressure, JLL reports, sales activity remained strong in the third quarter of the year.
JLL pointed to Hyde Development, which expanded its holdings in Minneapolis-St. Paul with the purchase of Waters Business Center. Also during the third quarter, Westmount Realty Capital entered the Twin Cities market with a five-building portfolio acquisition.
Big industrial leases signed during the quarter included Border States Electric taking 125,112 square feet at Zachary Distribution Center, Pepsi leasing 117,000 square feet at NorthPark VII and E.J. Welch leasing 111,222 square feet at Arbor Lakes C.
Acme Tools and Irby each leased 115,888 square feet to fill both Capstone 35 North and South during the quarter, while Stratasys leased 168,100 square feet of space at Parkers Lake Commerce Center.
Even with the threat of rising interest rates, industrial sales remained strong in the third quarter of 2022, with JLL reporting more than $300 million worth of industrial deals transacted during the three months.
In one of the bigger sales, Virtus RE Capital purchased a four-property portfolio in Minnetonka for $53 million that is fully occupied by Abbott Laboratories.
JLL predicts that demand will remain strong in the Twin Cities industrial market as the calendar flips to 2011. In its report, JLL said that nearly 11 million square feet of tenants are actively in the market. The big challenge might be for these tenants to find space. As JLL says, rising interest rates and construction costs might combine to reduce the area’s construction pipeline as developers struggle to qualify for financing even as tenant demand remains high.
CBRE provides additional evidence that the Minneapolis-area industrial market thrived in 2022. According to the company’s research, the industrial vacancy rate in the Twin Cities market dropped to 3% in the third quarter of the year. That’s a dip of 120 basis points when compared to a year earlier.
CBRE also pointed to a steady flow of speculative industrial deliveries during the third quarter. This included the 610 Broadway Business Center in Brooklyn Park, Arbor Lakes Business Park III in Maple Grove, Chaska Creek 1 and the Nordeast Business Center in Minneapolis.
CBRE also reported that new leases and expansions accounted for 67% of all market activity in the region in the third quarter. In the Northwest submarket, 81% of third-quarter activity came in the form of new leases.
