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MINNEAPOLIS-The Twin Cities continue to experience a high level of retail construction activity, particularly in Northwest Minneapolis where residential growth is strongest. Solomon Poretsky, regional manager of the Minneapolis-St Paul office of Marcus & Millichap, says, “developers are expected to complete more than four million sf of new retail space for the second straight year as they follow residential growth in the suburbs.”

He says the high level of construction is pushing up the overall vacancy rate slightly, “although the market remains relatively healthy as retail sales growth continues to post solid gains.” He puts the overall retail vacancy rate at 7.3%, but notes that vacancy is below 5% in submarkets to the north, northwest and west.

A first-quarter report from Grubb & Ellis says the overall vacancy rate among 17 area submarkets dropped to just above 6.3% in the year’s opening quarter, down from approximately 6.7% in the same quarter a year ago. The range among the submarkets, according to Grubb data, falls between an approximately 2.3% vacancy in Ridgedale to 13.2% in Brookdale. The latter is one of just four of the submarkets to experience negative absorption in first quarter.

Both Marcus & Millichap and Grubb data confirm that asking rental rates are inching up. Poretsky puts the overall average in the Twin Cities at $17.33 per sf. Grubb data puts the average at $20.18 per sf, with the lowest, $11.76 per sf, in the Calhoun submarket, and the highest, $26.10 per sf, in the Southdale submarket.

Both companies forecast continued strengthening in the retail sector. “The pipeline of new developments continues to grow, and owners of existing centers will continue to renovate and reposition their assets,” say Grubb analysts. “The vacancy rate should decrease slightly as anchor spaces at regional malls are absorbed during the year.” Among them are Mervyn’s units that went on the market in 2004.

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