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MINNEAPOLIS-The Twin Cities industrial real estate market continued to rebound during the second half of 2004, according to a new study. The commercial real estate market is seeing the strongest demand and the first signs of vacancy declines in four years, according to United Properties’ year-end 2004 market study.

“We may even see in 2005 the first return of speculative development,” says Mike Ohmes, senior vice president of brokerage services for the Bloomington, MN-based commercial real estate firm. The Twin Cities industrial real estate market reported positive 924,000 sf of absorption for the second half of 2004 and positive 1.2 million sf for the year overall. The industrial market reported only positive 72,000 sf of absorption over the previous three-year period beginning January 2001.

The industrial market is a solid 12 to 18 months ahead of the office market recovery, says Jason Meyer, vice president of United Properties’ industrial brokerage. The Northeast and Southwest submarkets led all others in absorption as most of the activity came from growth by local companies, she says. Those two submarkets may see speculative office showroom development.

“With little new construction in the pipeline and fewer user buildings be offered for sale, the Twin Cities industrial market is poised to absorb 2 million sf to 2.5 million sf in 2005,” Meyer says. Industrial developers delivered only 430,200 sf of new construction in 2004, a 10-year low.

Year-end 2004 industrial vacancy rates declined only modestly, primarily due to adjustments United Properties made to its industrial property database the second half of 2004. The adjustments added about 7 million sf of multi-tenant industrial space to United Properties’ industrial database. This contributed to rates declining only slightly to 15.5% in direct vacancy or 17.2% vacancy with sublease space added back in, in part reflecting adjustments to United’s property database.

Industrial rental rates remained flat from year-end 2003 to year-end 2004. Industrial office space was at $7.97 per sf for year-end 2004, while warehouse space was at $4.33 per sf. Landlords will continue to face concessions in 2005 ranging from significant tenant improvement allowances to free rent, according to United.

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