Industrial Construction Booms in Minnesota

MINNEAPOLIS—The industrial market in the Twin Cities has been very strong for about two years, and in the first quarter of 2015 robust demand was apparent throughout all submarkets and sectors, according to a new report from DTZ. The metro area absorbed nearly 700,000 square feet of space and the vacancy rate fell to 9%, a drop of 90 bps in the past year. And DTZ researchers say they are currently tracking about 2.5 million square feet of industrial construction throughout the region.

The metro area has an extraordinarily low unemployment rate, currently 3.3% according to the US Bureau of Labor Statistics, the lowest of any large region in the US. And its industrial sector has now seen 18 consecutive quarters of positive net absorption. “At year end of 2014, there were 89,900 job openings in the state, which is 47% higher than the year before, and the highest number of openings since 2001,” according to DTZ. “There are now 1.1 unemployed per active job opening, down from last year's mark of 2.1.”

Bulk warehouse buildings account for around 75% of all space under construction. The Northwest submarket is home to over 70% of all active construction at the end of the quarter. As reported in GlobeSt.com, Opus Group recently launched the development of a 145,800-square-foot speculative industrial office and warehouse facility in northwest suburban Brooklyn Park, its second recent spec development in the region.

The strength of the local market has certainly garnered the interest of investors from around the US. The volume of investment sales in the metro area has risen over the past two years and in the first quarter several multi-property portfolios were bought. The Eagandale Business Campus I-IV, for example, a collection of buildings in suburban Eagandale with a total of 241,501 square feet, were sold to Global Logistics Properties Ltd. of Singapore for $21 million, a portion of a roughly $8 billion national portfolio. And Chicago-based Greenfield Partners paid a Deutsche Bank entity more than $41 million for four buildings in Mounds View and Bloomington that have a total of 746,539 square feet.

Tony Phelps, senior director, real estate development of Opus Development Company, LLC, told GlobeSt.com that rental rates have increased and landlords are not finding it hard to fill new spaces, especially in the Northwest.

However, as the millions of square feet of new construction start hitting the market, DTZ experts expect the vacancy rate, currently far below the historical average of 12.3%, will finally start to rise again.