MINNEAPOLIS-New retail construction in the Twin Cities is slowingdown and brokers anticipate that the vacancy ratewill dip slightly to 5.4% or so next year.

“Demand will exceed supply,” says Richard Grones, apartner at the Cambridge Group based in Edina, MN andMinneapolis affiliate for Realty Resources.John Johannson, a retail broker with Welsh Cos., saysthat speculative development has been kept to aminimum. Given that the Twin Cities is adding from30,000 to 50,000 people a year to its population base,the supply of new store space is just keeping pace with thegrowing demand.

In part, development is being constrained byconstruction costs, which are “going through theroof,” rising at a rate of about 32% a year,Johannson says. He’s also concerned about the lack ofconstruction tradesmen, especially since many of themon the job now are 10 to 15 years away fromretirement.

On how much retail space will be added to the TwinCities market next year, there is a difference of opinion between Grones and Johannson. Grones predicts that theretail market will increase by 2.7 million sf, up 5% to 51.1 million sf overall. Johannson’sprognosis is more constrained, expecting only 900,000 sf of new space, adding slightly less than 2%to the market.

One of the strongest trends is the “new urbanism”approach to new shopping centers, which creates adowntown street lined with small shops next to somelarge box developments. The 250,000 sf first phase ofArbor Lakes in Maple Grove, developed by Opus Corp.,is often cited as the prototype for this.”It adds a much needed focus on upscale architecture,provides a unique synergy amongst the smallerretailers along Main Street, and adds an urbanizedfeel to an otherwise typical suburban setting,”Johannson says.

But Grones is concerned that some suburban cities aretrying to guide development toward small downtownstreetscape shops without the big anchor stores todraw traffic.”This trend in some cases has come dangerously closeto eliminating the large components, which actuallymake the smaller urban villages possible,” Gronessays.

Opus expects to begin construction next year on thesecond retail phase of Arbor Lakes, the Twin Citiesfirst “lifestyle center,” which mixes upscaledepartment stores with restaurants and entertainment.

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