Local Comm. Real Estate Shows Signs of Slow Recovery
The Twin Cities commercial real estate market saw some positive signs in the first half of 2011-and it may be well on its way to experiencing the first full year of positive absorption since 2008, according to a mid-year report by NorthMarq.
Investments are picking up steam, and the vacancy rate for all property types in the 13-county metro area is down to 15.3 percent due to 1.1 million square feet of positive absorption during the first six months of the year. Absorption refers to the difference in occupied space between one point in time and another.
Bloomington-based NorthMarq acknowledged that recovery in the local office market has been slow. The market still has a relatively high vacancy rate of 19.2 percent-but it's down from 19.9 percent at the end of 2010. St. Paul's office vacancy rate is 23.8 percent; Minneapolis' is 18.9 percent, according to the report.
In the retail market, overall vacancy hit 8.8 percent-its lowest level since 2008. Vacancy at community retail centers is down even further, at 7.1 percent. That's in large part due to several retailers closing in the past few years-like Circuit City and Ultimate Electronics-and their vacant big-box spaces being filled during the first half of 2011.
And many development and redevelopment plans are underway or on the horizon, including five Wal-Mart stores, and the redevelopment of the Brookdale Center, Lookheed Martin's former Eagan campus, and the former Jaguar dealership in downtown Minneapolis.
The report states that the metro area's apartment rental market is booming-with vacancy falling to a five-year low of 3.1 percent. The demand is strong at all price levels and has allowed landlords to raise rent, and more joint venture capital is fueling development.
In fact, absorption is currently outpacing development, although there are some new projects on the horizon: About 1,200 units are projected to open in 2012, followed by another 2,500 to 3,000 units in 2013.
The Pioneer Press, which also reported on NorthMarq's recently released data, notes that the boom in apartment construction is expected to extend into the suburbs during the next few years.
A representative of Minneapolis-based Maxfield Research told the St. Paul newspaper that she agreed with the NorthMarq data, but questioned whether financing will be available for that many units in the next couple of years.
There was also an uptick in demand for industrial space during the first half of the year, resulting in 542,000 square feet of positive absorption-the first positive absorption in the market since 2008. The most activity is occurring in bulk warehouse properties, according to NorthMarq.
Looking forward, NorthMarq predicts that the overall Twin Cities commercial real estate market could see an additional 2 million square feet of positive absorption in the next six months, for a total of about 3 million square feet for the entire year-the most since 2007.