X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

MINNEAPOLIS-As some of the largest and fastest-growing companies in the Twin Cities feel the pinch of the slumping economy, vacancy rates in the area’s industrial sector have risen 1 percentage point to 11.4% in the first half of this year, according to a recent market report from United Properties. Telecom leaders like Eden Prairie-based ADC Telecommunications, one of the most expansive companies in the region over the past few years, abruptly slammed on the brakes as the market for fiber-optic equipment took a downward turn and capital funding sources dried up.

Demand also cooled from big space users like Seagate Systems, Johnson-Matthews and Cypress Semiconductor, all with substantial operations in the Twin Cities.

For the abundance of smaller companies that serve these larger tech companies, times were equally tough and many found themselves over-committed for space.

Coupled with an increase in business failures, including several mid-sized to large local companies, this contributed to a substantial increase in subleasespace–up more than 50% since January.

With sublease space included, the vacancy rate is 14.2%, enough to give space users reason to feel optimistic about their near-term bargaining power,according to officials at United, a Bloomington-based commercial real estate firm. From 1995 to 2000, the Twin Cities added more than 17 million sf of new industrial space, in the midst of unprecedented absorption. For the first time in more than six years, absorption was to the negative side, at minus 635,760 sf.

New development activity, not presently under construction, has virtually come to a halt as developers postponed planned projects until they receive significant pre-leasing or the market shows signs of coming back into equilibrium. Slightly more than 665,000 sf of new construction came onlinethe first half of the year. Nearly 1.5 million sf will be added to the market over the next six months.

Building owners held the line on rental rates for the first six months of the year, but concessions are on the rise. Although demand will likely begin to pick up the second half of the year, it will take time for the industrial market to absorb the amount of vacant space currently available. Property owners looking to stimulate demand over the next six to 18 months may need to adopt even more aggressive marketing tactics and consider rate reductions in order to be competitive.

A bright spot in the overall market picture was the continuing growth of the medical technology sector in the Twin Cities. Led by such giants as Medtronic, St. Jude Medical, Guidant and Boston Scientific, the players in this core Twin Cities industry provided a needed stimulus for new space in an otherwise largely quiet market.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt. NET LEASE 2020Event

This conference brings together the industry's most influential & knowledgeable real estate executives from the net lease sector.

Get More Information
 

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.