The numbers from Cushman & Wakefield’s latest Compass report for the Minneapolis/St. Paul market aren’t surprising: The first half of 2020 started off with record-setting sales. Then COVID-19 hit, and since then sales, leases and new construction have all sputtered.
But Cushman & Wakefield’s report does contain some hope: Mike Ohmes, managing principal with the Minneapolis-St. Paul office of the firm, said that companies in the Twin Cities are now planning for the future. They’re looking for opportunities in 2021 and beyond, something that gives the CRE community in here hope for the days when COVID-19 has become an unpleasant memory.
As in most markets, the industrial sector remains the strongest in the Twin Cities. Cushman & Wakefield reported that the industrial vacancy rate in the market stood at 7 percent at the end of the second quarter of the year. That is a modest increases of 20 basis points from the end of 2019. The current vacancy rate does represent a drop of 80 basis points from the 7.8 percent rate recorded at mid-year 2019.
New industrial deliveries totaled just more than 640,000 square feet in the first half of the year and weere concentrated in the Northwest submarket. Speculative bulk warehouse projects by Scannell Properties and Opus were the largest of these new deliveries.
The Minneapolis/St. Paul market absorbed a total of 885,000 square feet of industrial space during the first six months of 2020.
Not surprisingly, multifamily remains another bright spot in the Twin Cities. According to Cushman & Wakefield, the multifamily sector saw more than $400 million in total sales volume during the first quarter of the year.
Other sectors are seeing more struggles, with retail leading the way. The Compass Report said that the vacancy rate for this sector rose to 9.5 percent during the first half of the year. At the same time, retail absorption remained flat.
The retail sector does, though, offer opportunities. Cushman & Wakefield said that the permanent closure of so many retail businesses has created space-specific opportunities for established users.
There are some retailers that are thriving today in the TWin Cities area, with Cushman & Wakefield pointing to grocery stores, liquor stores and dollar stores as examples. These businesses have maintained a steady stream of sales. Also doing well? Restaurants and retailers that feature busy carry-out, drive-through and curbside options for their patrons.
Leasing has slowed in the second quarter in the office market, though the Compass Report shows that this sector saw 378,050 square feet in positive net absorption during the first six months of 2020. The sector, though, is going through significant changes. Cushman & Wakefield reports that new investors are challenging long-held pricing and sales assumptions in this sector.
The biggest first-half office delivery came courtesy of Thrivent, which opened a new headquarters in the Minneapolis CBD. As of the middle of the year, 2 million square feet of new office space was under construction in the Twin Cities market. The Minneapolis CBD accounted for the majority of multi-tenant space set to deliver in the next 12 months.
The hotel sector has certainly struggled across the nation as far fewer people travel. Unsurprisingly, the hospitality sector in the Twin Cities is facing its own challenges. Cushman & Wakefield says that the hotel industry has flattened during the first half of the year following an extended up-cycle that was still going strong at the beginning of 2020.
According to the Compass Report, new hotel projects that had not broken ground before the pandemic shutdowns are now on hold. Projects that were already underway are still moving ahead.
Despite the slowdown, the hotel sector did see some new openings in the Twin Cities market in the first half of the year. Notable new hotels include the 182-room dual-branded Home2/Tru, 126-room Element and the 170-room Cambria Suites, all at the Mall of America. Construction started in the early spring on the dual-brand Cambria/Fairfield in downtown Minneapolis, while work is underway on a new Home2 Suites near Surly Brewing in Northeast Minneapolis.
And what about the second half of this year? Cushman & Wakefield is predicting some positive developments.
The report predicts that the Twin Cities market will see 1.45 million square feet of commercial absorption during the second half of 2020. It also predicts that the market will see 2.3 million square feet of new commercial construction underway during the second six months of the year.