Mike Bowen, vice president with the Minneapolis-St. Paul office of CBRE, specializes in the industrial market. That’s been a good space to be in during the last several years, and an especially good one for the Twin Cities region. We recently asked Bowen three key questions about this industrial market.
Here’s what he had to say.
How strong is the industrial market in the Minneapolis/St Paul market today? What are some of the factors behind the strength of this sector?
Mike Bowen: The industrial market in Minneapolis/St. Paul is as strong as I’ve seen it in my 10-year career. We just experienced our 38th consecutive quarter of positive net absorption and vacancy is at an all-time low of 4.2 percent. Office/warehouse product type vacancy sits at 3.8 percent, the first time I’ve seen any specific product type reach sub 4 percent vacancy.
Also, 2.9 million square feet of new product is currently under construction, which does not include roughly 1 million square feet of speculative development and additional build-to-suit development that will break ground in 2020. There’s currently 8 million square feet of active space demanded, a very healthy number considering the five-year rolling average is 6.1 million square feet of active space demanded.
Drivers of demand include a robust economy that has allowed many users to grow organically in order to accommodate new business. E-commerce has made a big impact on industrial space demand.
Finally, the big owners continue to get bigger. Just in the last 24 months, LINK Industrial/Blackstone has gone from zero product owned to the largest landlord in town with 8 million square feet under ownership and growing. Capital Partners continues to acquire product and Prologis’ recent acquisition of Liberty Property Trust has thrust them back into the Minneapolis/St. Paul market. The primary result of this robust capital markets activity has been meaningful rent growth. I’m seeing deals completed where owners are achieving 10 percent, 20 percent even 30 percent growth in net rents, something I have not seen before in my career.
What do you think makes the Twin Cities area such a strong industrial market? What attracts industrial users to this region?
Bowen: Minneapolis/St. Paul has an incredibly well-educated and reliable workforce that users value. Additionally, gone are the days of two-day delivery to consumers being acceptable. The result has been users expanding their supply chains and putting a flag in the ground in Minneapolis/St. Paul in order to meet customer demand more quickly. Lastly, we have a diverse workforce and diverse industry driven by agriculture and medical devices, to name a few.
I know this has been talked about a lot, but do you think e-commerce’s impact on the industrial market will only continue to grow stronger in the near future? How important has e-commerce been to the Twin Cities’ industrial market?
Bowen: Nationally, e-commerce users accounted for 52 percent of the 100 largest warehouses leases signed in 2019, totaling more than 45 million square feet. Locally e-commerce has been a significant driver in the Twin Cities market. This e-commerce demand is not slowing down anytime soon.
Name-brand retailers have put emphasis on core markets to meet customer demand, but as the 16th largest MSA in the country, Minneapolis/St. Paul can’t be ignored forever. My prediction is in the next five years a significant driver of demand will be retailers entering our market with warehouse/fulfillment center needs in an effort to more efficiently meet customer demand.
One final trend to look out for is food/beverage e-commerce. Food and beverage transaction volume on a national basis was up 44 percent in 2019 as companies improve their grocery supply chain for supermarkets and e-commerce fulfillment. We’re seeing early signs of that demand in Minneapolis/St. Paul and it will only continue.