Industrial interest in Minneapolis-St. Paul is starting to pick up, as financing becomes cheaper. A report from Colliers finds that cap rates within the market's asset class have dropped 35 basis points since 2025 began, although it did not reveal the exact rate.
The CRE firm noted that "macroeconomic and local factors" have decreased cap rates. The most favorable rates can be found on high office finishes and new Class A buildings. Currently, the average lease term is fewer than three years.
Furthermore, "the best cap rates can be achieved on properties with high vacancy and below market rents," Colliers added, saying that "spreads have tightened, and buyers are ready to borrow for capital."
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Despite cap rates becoming more favorable, it's important to note that deals have slowed down, and some landlords are offering more concessions as a result. For example, average TI (tenant improvement) allowances spiked by $3.15 last year to reach $6.73 per square foot. Also, on average, free rent abatements have increased to 0.36 months per year.
"These concessions are mostly being seen in the outer metro where vacancy is highest," Colliers said.
"Owners in the core metro have fewer vacancies and don’t have to contribute as much to each deal."
Another reason could be the surging of costs. Common Area Maintenance (CAM) and taxes on new leases, which tenants typically pay, increased by 18.8 percent in 2024, and so far are up by another 19.2 percent in 2025.
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