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MINNEAPOLIS-Industrial companies absorbed 2.5 million sf of industrial real estate space in the Twin Cities metro area during the first six months of 2005—about double the amount of industrial space absorbed over the last four years combined, according to a preview issued Monday of United Properties’ mid-year 2005 Outlook market study.

The vacancy rate dropped to 13% the first half of 2005 from 15.5% at year-end 2004. The net rental rates remained flat at $4.33/sf for warehouse properties and $7.98/sf for office warehouse properties over the six-month period.

“Given the limited supply of new construction and fewer user buildings being offered for sale, companies are turning to the existing supply of for-lease industrial space,” says Scott Moe, vice president of industrial brokerage for United Properties.

Moe predicts the market could “comfortably absorb” another 1.5 million sf to 1.7 million sf of space over the second half of the year, which would reduce vacancy by as much as two points and likely trigger additional speculative construction.

United Properties at the end of last year projected that by the end of this year the Twin Cities industrial market absorption could reach 2 to 2.5 million sf—about double 2004′s 1.2 million sf of absorption. That’s an impressive rebound given that the net absorption from for the three years from 2001 to 2003 was just 72,000 sf.

Bulk warehouse leases, several with national retailers, accounted for 1.1 million sf of first half 2005 absorption. Wal-Mart, SuperValu and Target all signed distribution center deals ranging from 100,000 sf to 300,000 sf. The leases are typically short-term, giving the tenants the ability to remain flexible until there is more certainty related to long-term economic growth, Moe says.

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